How to start a mortgage company

Starting your own mortgage company can be challenging. There are numerous steps involved, including business plans and legal strategies. Not to mention the different lenders and organizations you will likely need to deal with.

But with the right planning, execution, and dedication, it can also be incredibly profitable.

In this article, we show you how to start a mortgage company, as well as answer questions such as: how do mortgage companies make a profit?

Here is everything you need to know on how to start your own mortgage company.

How to start a mortgage company

There are many steps to starting a company of any kind, including a mortgage company. Let’s get started by taking a quick look at these steps:

1. Choose a name
2. Develop a business plan
3. Choose the legal structure
4. Secure startup funding (if required)
5. Secure a location
6. Register your company with the IRS
7. Open a business bank account
8. Get a business credit card
9. Secure business licenses/permits
10. Get business insurance
11. Purchase or lease equipment
12. Develop marketing materials
13. Buy and set up the required software
14. Open

Now, let’s look more closely at each step so that you will be better prepared to start your mortgage company:

1. Choose a name

So how does one start a mortgage company. The first step is choosing a name. This is an important step because it will be your brand and, hopefully, will last the lifetime of your business.

Here are some tips to choose a mortgage company name that is meaningful and memorable:

• Make sure it's available: You can check the name’s availability against your state’s list of registered business names and trademark databases. You can also check the availability of a suitable domain name.
• Simple, simple, simple: Choose a name that is easy to remember, pronounce, and spell.
• Easily marketed: Your name should reflect the brand and focus of your mortgage company.

2. Develop a business plan

Developing a business plan is one of the most important steps in this process, since it ensures you understand your market and business strategy. The business plan for your mortgage company should include the following:

• Executive summary
• Company overview
• Industry analysis
• Customer analysis
• Competitive analysis
• Marketing plan (addressing product, prices, place, and promotions)
• Operations plan
• Management team
• Financial plan

Once you’ve made a business plan, here are some tips to make the most out of it.

3. Choose the legal structure

You need to choose the legal structure of your mortgage company. You’ll need to register it and your business name with the Secretary of State in each state where your business operates.

Here is a look at some of the most common legal structures:

Sole proprietorship
This is a business entity where the owner of the mortgage company and the business are the same legal person.

As the owner of the sole proprietorship, you are responsible for all obligations and debts of the business. The main advantage here is that it is easy and inexpensive to establish. The downside is that you are liable for all obligations and debts of the business.

Partnerships

Partnerships—an agreement between two or more people starting the mortgage company together—are popular among small businesses.

In this case, you would share the profits and losses of the business. The advantage here is that they’re easy to set up and you share profits/losses. The disadvantage is that disagreements between partners can be hard to resolve.

Limited liability company (LLC)

An LLC is a business entity that provides limited liability for owners. This means you would not be personally responsible for debts and liabilities of the business.

This can be good for flexibility in management, pass-through taxation, and limited personal liability. However, in some states, there is lack of LLC availability and self-employment taxes.

4. Secure startup funding (if required)

You may have to determine whether you need to raise money to launch your mortgage company. Main sources of funding you may consider include personal savings, family and friends, bank loans, crowdfunding, angel investors, and credit card financing.

5. Secure a location

To secure a location, you will have to decide the type of location you want, such as a storefront, office building, or home-based business.

To help you decide, you can research the areas that are affordable and suit your needs. The next step is to reach out to real estate agents, find a desirable property, and consider any necessary renovations. The last step is to finalize the lease or purchase agreement.

6. Register your company with the IRS

Once you register your company with the Internal Revenue Service (IRS), you will get an Employer Identification Number (EIN). To open an account, most banks will require you to have an EIN. Additionally, you will need an EIN to hire employees, since that is how the IRS will track your payroll tax payments.

7. Open a business bank account

You will also have to open a business bank account, which is fairly straightforward.

First, identify and contact the bank you want to use. Next, gather and present the necessary documents and then complete the bank’s application form. Finally, meet with a banker to discuss your company’s needs and establish a relationship.

8. Get a business credit card

To help you separate business and personal expenses, you should get a business credit card. You can get one through your bank or a credit card company.

You will need to provide information about your mortgage company when applying for the business credit card. This includes the name and address of your company, as well as the type of business you are running.

You will also need to provide personal information like your name, date of birth, and social security number.

9. Secure business licenses/permits

To start a mortgage company, you will need licenses and permits, depending on where your company is located.

For instance, you might need a license to offer mortgage services. You may also need a license to operate as a mortgage lender, as well as register with your state’s financial regulator.

For more information on which permits and licenses you may need in your area, contact your state’s financial or banking regulator.

How to start a mortgage company? Securing business licenses and permits is one of the steps.

10. Get business insurance

To set up a mortgage company, you will need business insurance. The type of insurance you need will vary depending on the type and size of your company.

Here is a list of some business insurance policies you can consider:

• General liability insurance
• Workers’ compensation insurance
• Commercial property insurance
• Business interruption insurance
• Professional liability insurance

The best way to secure your business insurance is to find an insurance agent. Speak with them about your business needs, and they will recommend the right policy for you.

11. Purchase or lease equipment

You will likely need to purchase or lease equipment to run a mortgage company, everything from computers with internet access to office furniture.

12. Develop marketing materials

Marketing materials will help you attract and retain clients to your mortgage company. Key marketing materials that you will want to develop include a logo, a website, and social media accounts.

13. Buy and set up the required software 

Customer relationship management (CRM) software will help you run your mortgage company more efficiently. You will also want to purchase and set up an accounting system and a loan origination system (LOS).

14. Open

That’s right—at this point, you should be ready to open your mortgage company for business!

For some inspiration in starting your mortgage company, here’s a story about Porch Point Mortgage CEO Darius James.

How to start a mortgage company: is a mortgage company profitable?

Historically, yes, mortgage companies are profitable. However, in 2022, mortgage lenders lost hundreds of dollars on average for every loan they originated as increased interest rates lowered demand, according to a report in The Hill.

Mortgage companies and banks lost an average of $301 for every loan originated last year, which was down from an average profit of $2,339 per loan in 2021. The findings were published in a report by the Mortgage Bankers Association.

“The rapid rise in mortgage rates over a relatively short period of time, combined with extremely low housing inventory and affordability challenges, meant that both purchase and refinance volume plummeted,” said Marina Walsh, MBA’s vice president of industry analysis, in a press release. “The stellar profits of the previous two years dissipated because of the confluence of declining volume, lower revenues, and higher costs per loan."

How to start a mortgage company and make a profit

Mortgage companies make a profit in a number of ways. Some of the more common ways include origination fees, yield spread premiums, closing costs, loan servicing, discount points, and mortgage-backed securities (MBS).

Closing costs that mortgage lenders typically make money from include application, processing, underwriting, and loan lock, among other fees.

How to start a mortgage company: closing thoughts

If you are a mortgage loan officer and want to start your own mortgage company, understanding the steps in the process is important. Some of these steps are the same for any business. Others (such as licensing, for instance) will be specific to the mortgage industry.

Remember: the more knowledge you have, the better off you will be. 

If you need help learning how to start a mortgage company, get in touch with one of the mortgage professionals we highlight in our Best of Mortgage section. Here you will find the top performing mortgage professionals across the USA.

Did you find these tips useful? Do you think you now know how to start a mortgage company? Let us know in the comment section below.