Takeaways:
- Owning a home remains on the wish lists of many people in the U.S.
- Every state has slightly different requirements, but they always involve obtaining a mortgage broker license and bond.
- There are five steps to getting your license.
Despite the ups and downs in the global financial markets, owning a home remains on the wish lists of many people in the U.S. There will always be a need for the services of mortgage brokers.
Because mortgage brokers play an important role in the process of owning a home, their profession is heavily regulated. Every state has slightly different requirements, but they always involve obtaining a mortgage broker license and bond.
If you’re currently beginning your journey to becoming a mortgage broker, you might be a bit confused as to where to start. So read on to get a better idea with the following five steps.
1. Starting out with the right education
Sorry, Pink Floyd, but you do need education, and that’s true for becoming a mortgage broker as well. While no college-level degree is required, mortgage brokers need at least a high school diploma in addition to 20 hours of training at an approved institution.
Furthermore, though not required, you cannot excel in a job like that if you don’t educate yourself in fields like economics, financial analysis, accounting, law and government.
Numerous online courses now exist on these subjects in sites such as Coursera, though if you prefer to be among people, you can also attend evening classes in a community college near you.
2. Preparing for the exam
In addition to the 20-hour educational requirement, you will also need to pass an exam to show what you’ve learned. The exam is administered by the National Mortgage Licensure System (NMLS), which is the system where licenses are kept — though the NMLS in itself is not a license-granting authority.
The exam, called the SAFE Mortgage Loan Originator Test, has questions that are unique to each state, but the largest part of it contains questions about regulations that apply nationwide.
To best prepare for the exam, make sure you read the free resources provided on NMLS’ website.
3. Understand bonding requirements
Most states require that each valid mortgage broker license be accompanied by a mortgage broker bond.
A mortgage broker bond is a type of surety bond. In essence, this is a sort of protection for the future homeowner — your customer.
If you were found to use fraudulent business practices, a customer could sue you for the amount of the bond required by your state.
For example, in Pennsylvania the amount is set to $100,000, but in Alabama it’s just a quarter of that — $25,000.
You are not required to pay these full amounts to become a mortgage broker, of course. Mortgage broker bonds are paid in annual premiums — the same way insurance works, except that the insured is not you in this case.
4. Calculating your costs
Before embarking on any venture, you would want to calculate your startup costs upfront. Although the exact number will depend on a variety of factors, it’s possible to get a rough estimate.
The exam fees are a fixed amount for all brokers regardless of the state: The national component costs $110, and the state component is $69.
When it comes to mortgage broker bonds, it’s a bit more complicated because the prices depend on many factors, though you can still get a fair estimate using your credit score. If it’s good and you have no other credit issues, the premium is in the range of 1-3 percent of the total amount.
If you have bad credit, which means a FICO score of below 650, premiums can go up to 15 percent. However, don’t hesitate to talk to your surety agent about lowering your costs, because it’s possible even if your credit score is less than perfect.
Finally, each state might have a small processing fee, which is usually nonrefundable.
5. Maintaining your mortgage broker license and bond
Of course, the journey doesn’t end with getting licensed. Once you do, you have to maintain that license, which means renewing it annually.
Depending on your state, you will have to take a certain number of hours (approximately 20) of continuing training and renew your mortgage broker bond as well. Keep in mind that if you want to operate in more than one state, you have to start a new licensing application there.
These are the most important steps in becoming a mortgage broker. Go ahead and find the regulatory body in your state, and begin your application.
If you are struggling with any part of the process, feel free to leave a question or comment in the section below.
As for experienced mortgage brokers, what would your advice be to anyone who is just starting their application? Please leave your thoughts in the comments section below.
Todd Bryant is the president and founder of Bryant Surety Bonds. You can follow him on Twitter and LinkedIn.