How to Start a Mortgage Lending Business

by Jim Hagerty; Updated September 26, 2017

Becoming a mortgage lender (banker), is different from starting a mortgage brokerage business. Although mortgage bankers do often broker loans, they differ from brokers in that they are permitted to lend money to those seeking home financing. Becoming a mortgage lender, therefore, involves a special license. The process of obtaining a license contains a relatively detailed application process. Read more for help.

Items you will need

  • Application
  • Credit line
  • Individual licensing (if applicable)
  • Financial information, personal and corporate

Prerparing to Apply

Step 1

Contact the office in your state that issues mortgage banking licenses. Representatives from this office will furnish you with an application package. As part of this application, you will likely be required to pay a non-refundable application fee. Depending on your state, this fee will range from $800 to $4,000 and must be paid at the time of application.

Step 2

Know your net worth. To become a mortgage banker, most states require that each applicant have minimum net worth. Although state net worth requirements differ, it is common for your tangible net worth to be required to be in $150,000 to $500,000 range. You will also likely be required to be bonded, insured. This information must be submitted in the form of an official and detailed balance sheet. Depending in which state you wish to do business in, these financials must be created by a CPA, attorney or both. It is, therefore, wise to hire both.

Step 3

Clear your credit report of derogatory accounts. Having poor credit, littered with unpaid collections and judgments could result in the rejection of your application. It is, therefore, important to satisfy all outstanding accounts. If you have ever filed for bankruptcy, you may be required to re-establish your credit for specific period of time before applying. Include written letters, thoroughly explaining your negative credit.

Step 4

Secure a line of credit. To be a mortgage banker, you must prove that you have access to money you will use to fund your loans. This means you will have to secure a line of credit with a lender. Most states require that you have access to a minimum of $250,000 to $500,000 to lend to your clients. It may also be required that the lender supplying your line of credit submit a "Letter of Credit," or LOC, verifying availability of your credit line, otherwise known as a warehouse line.

Step 5

Choose a location for your business. Most states require mortgage banking firms to have their own addresses, different from the homes of their principals. To satisfy this common requirement, secure a location acceptable to your state's licensing agency before submitting your application.

Step 6

Satisfy individual licensing requirements. Some states require that all of your firm's principals and loan officers be individually-licensed to originate mortgage-backed home loans. Principals may also be required to have specific experience in the industry of up to three to five years before becoming banking licensees.

Step 7

Submit your application. Most states require that several documents in your application be properly and legally stamped and/or sealed by an attorney or accountant before they are reviewed by a licensing board. After you've satisfied all of your state's requirements, submit your application to your state's licensing agency.

Tips

  • Create a business plan before applying. Know your state's laws regarding mortgage bankers before originating loans. Incorporate if needed. Some states will not issue mortgage banking licenses to sole proprietors.

Warnings

  • Secure your license before lending money to clients. Never do business as a banker without being licensed. Doing so could result in stiff penalties including fines and prison.

About the Author

Jim Hagerty is a writer and journalist who began writing professionally in 1996. He has had articles published in the "Rock River Times," "Builder's Journal" and various websites. He earned a Bachelor of Science in public relations and journalism from Northern Michigan University in Marquette.