How to Set Up a Mortgage Business

One of the great advantages of being a mortgage broker is that you do not necessarily have to lease office space to run your business. You can operate out of your home or apartment (at least early on) without the need for public contact or involvement. Additionally, you can secure a separate voice mail service to use for business calls and messages. Also, you may elect to use your cell phone number as your business number. These options let you delay office and other expenses until you are ready to expand.

It should be noted that clients may be more comfortable with brokers that have offices. ; They they feel you are established and more secure when you have office space. Until you secure an office, you may want to promote yourself personally by visiting their clients' homes or offices to complete their application. Later, instead of investing in a full office, you may want to pursue an executive suite arrangement. Such offices provide a receptionist, conference rooms, and an office at a fraction of the cost to lease your own office space.

The cost of computers has decreased substantially. You should be able to find a brand name desktop computer for less than $500.00. I prefer a laptop computer because I can travel and still conduct business.

When you are ready, purchase the following equipment:

Choosing a Business Form

Sole Proprietorship A sole proprietorship is exactly what the name implies, : one owner. It is very simple to form a sole proprietorship. In Texas, all you have to do is confirm at the county clerk's office that no other company has filed the same name. You then can apply for an Assumed Name Certificate or D.B.A. (Doing Business As). You may contact your local county clerk's office for more information.

This form of business does not protect you from litigation, as a corporation would. If your business is sued, you are sued personally. However, business liability insurance is an alternative to consider. Liability insurance may be available through some trade associations, such as the National Mortgage Broker Association or one of the state mortgage associations.

General Partnership

A general partnership can be an answer to a prayer or your worst nightmare. Many individuals form partnerships to pool their resources for a common cause. Each partner is legally responsible for what the other does. Each partner is jointly and severally responsible for the liabilities of the partnership. In other words, creditors or other entities can sue each partner personally. In addition, one partner can create problems for all the partners. Trust and harmony is vital in a general partnership. Before you get involved with this form of business, you should be sure you know all the risks involved. A general partnership is often termed a professional marriage. As with any marriage, you can expect a few disagreements or conflicts.

If your partnership runs into credit problems, creditors will often go after the strongest partner. This partner may end up suing you to recover personal losses, even though the creditor has already filed suit against you. Again, seek professional advice before you enter into any agreement, written or oral.

Limited Partnership

A limited partnership is another way to pool resources for a business venture. The investors are the limited partners and their personal liability is limited to their financial investment. A general partner is the party that puts the deal together and usually operates the business venture. Limited partnerships are common investment vehicles for real estate and oil and gas deals. In some states, attorneys form limited partnerships to circumvent franchise taxes.

This form of business can be complicated and it is wise to consult a CPA, tax attorney, or other qualified source before signing any agreement. It is not a common way to start a mortgage business.

Corporation

A major advantage of a corporation or C Corp is the protection it affords you from personal litigation or liability. When you form a corporation, the corporation is treated as a separate entity. The owner or owners of the corporation have limited liability.

Shares of stock are issued to the owner or owners of the corporation. If one of the shareholders dies, the corporation continues to operate. One disadvantage of a corporation is the potential of double taxation. The corporation is taxed on its profits and the shareholders are taxed on any dividends.

Subchapter S Corporation

Subchapter S Corporations or S Corps make it possible for small businesses to avoid double taxation. Once a corporation is formed, the shareholders file a Subchapter S election with the IRS. When this is approved, profits or losses can flow directly through the corporation to the shareholders. In other words, the shareholders are taxed instead of the corporation. The shareholders simply list their share of the profits or losses on their personal tax returns.

There are several restrictions to S Corps. Check with an attorney or CPA to assist you with this type of corporation. Some government agencies, such as the Small Business Administration, may have free brochures or booklets that cover this form of business.

Limited Liability Company

The limited liability company (LLC) is a relatively new business form. It has several advantages over other business forms. For example, although they may operate like a traditional partnership, the owners have certain privileges similar to corporations.

An LLC is taxed as a partnership, allowing losses or profits to pass on or flow through to the individual owners. Additionally, liabilities are limited, giving owners some personal protection from lawsuits for liabilities of the business. Unlike an S Corp, an LLC does not have certain limitations of stock classes and number of shareholders. Setting up this form of business generally requires an attorney to draft the necessary legal documents for you. Many professionals and companies that are concerned about business liabilities find an LLC appealing.

Laws change periodically and controls on this form of business may tighten or loosen in the future. Consequently, as in all forms of businesses, you should seek the advice of a professional on whether this form of business is right for you.

State Requirements

Some states have minimum experience requirements before they will issue a license to you to start your own mortgage brokerage business. Additionally, you may have to meet other financial requirements. Obviously, you must pass the background checks. You should research this information in advance so that when you are ready to start your own company, there will not be any unexpected delays.

Refer back to the list in Chapter 3 to research the mortgage broker requirements for your state. Join one of the trade associations, such as the National Mortgage Broker Association to take advantage of any service discounts and to have a resource of important industry information.

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