Understand the Licensing/Regulatory Requirements for Commercial Mortgage Brokers

One of the first questions residential brokers ask when considering the jump to commercial is: "Do I need a different license?"

The answer isn't straightforward, but here's the good news — in many states, you'll probably face fewer regulatory hurdles than you're used to.

The Big Shift: Less Federal Oversight

If you've been in residential lending for a while, you're all too familiar with the SAFE Act and its requirements. You've done your pre-licensing education, passed the exams, registered with NMLS, and kept up with continuing education every year.

Here's where commercial gets interesting — the SAFE Act primarily applies to residential mortgage loan originators, not commercial. That federal framework that standardized licensing across states? It doesn't typically extend to commercial lending.

This means commercial mortgage brokering often has fewer federal hoops to jump through. But before you get too excited, remember that states have their own say in the matter. Some require specific licenses for commercial activity, while others don't require any additional licensing at all.

State by State: A Mixed Bag

Based on the latest information, the regulatory landscape for commercial mortgage brokers breaks down into three main categories:

Most States Don't Require Commercial Licensing

Good news — the majority of states (around 39) don't require specific licensing for commercial mortgage brokering. This includes Florida, New York, Texas, to name a few. In these states, you can typically broker commercial mortgages without obtaining a specific commercial license. That's a significant difference from residential, where licensing is mandatory nationwide.

A Few States Require Specific Commercial Licenses

Only a handful of states require specific licensing for commercial mortgage brokering:

Arizona: Requires a Commercial Mortgage Broker or Banker License
California: Requires a Finance Lenders Law (or CFLL) license for commercial mortgage loans
Nevada: Requires a Mortgage Broker License for both company and loan originator
South Dakota: Requires a Non-Residential Mortgage Lender License

Some States Have Mixed Requirements

A few states have more nuanced requirements. They might require licensing for residential investment properties but not for purely commercial deals. Or they might include commercial activity under other licensing frameworks, like real estate broker licenses.

For example, Minnesota may include commercial mortgage activity under a Limited Real Estate Broker License.

How to Find Out What Your State Requires

Before you arrange your first commercial deal, take these steps to confirm your licensing requirements:

1. Check your state's banking or financial services department website
2. Contact the department directly for clarification
3. Check the NMLS Resource Center for your state's information
4. Look at industry resources like BiggerPockets forums or the Mortgage Bankers Association

Don't rely solely on what another broker tells you or on outdated information. Or on this article, for that matter. Regulations change, and what was true last year might not be true today.

Using Janover Pro can help you connect with lenders once you're properly licensed, but make sure you've got your regulatory bases covered first.

The Licensing Process, When Required

If your state does require a commercial mortgage broker license, the process typically looks like this:

1. Complete any required pre-licensing education (though often less extensive than residential requirements)

2. Pass required examinations

3. Submit applications through NMLS or directly to the state regulatory body

4. Provide supporting documentation, which may include:

   • Background checks
   • Financial statements
   • Surety bonds (amounts vary by state)
   • Business formation documents
   • Physical office documentation (some states require a physical office)

The fees vary by state but expect to pay several hundred dollars for the application and annual renewal fees.

Staying Compliant Once Licensed

If you do need a license, you'll also need to stay compliant. This typically involves:

Continuing Education: Some states require annual CE credits, though often fewer than the residential requirement.

Record-Keeping: Maintaining proper documentation of transactions, advertisements, and client communications.

Ethical Standards: Following state-specific rules on advertising, client disclosures, and fee structures.

Renewal: Timely license renewal, usually annually.

Even in states that don't require specific licensing, you'll still need to follow general business laws and regulations that apply to financial services.

Practical Navigation Strategy

If you're just getting started in commercial mortgage brokering, here's a practical approach to handling licensing:

1. Research First: Determine your state's requirements before arranging any commercial deals.
2. Build a Compliance Plan: Even if you don't need a specific license, document how you'll maintain ethical business practices.
3. Consider Multi-State Operations: If you plan to broker deals in multiple states, create a spreadsheet tracking the requirements for each.
4. Get Professional Help When Needed: For complex situations or multi-state operations, consider consulting with a licensing specialist or attorney.
5. Stay Updated: Laws change, so review your requirements annually, at minimum.

Getting Started: Your Action Plan

If you're ready to make the move to commercial mortgage brokering, here are your first steps regarding licensing:

1. Contact your state's financial regulatory body to confirm commercial licensing requirements.
2. If a license is required, start the application process immediately, as it can take weeks or even months.
3. If no license is required, document this finding (including who you spoke with and when) for your records.
4. Join industry groups and forums where regulatory changes are discussed.

Remember, one of the appeals of commercial mortgage brokering can be the reduced regulatory burden compared to residential. But you still need to do your homework to ensure compliance with applicable state laws.

The Bottom Line

For many residential brokers, the move to commercial can mean fewer licensing hurdles, particularly at the federal level. But state requirements vary widely, and doing your due diligence on licensing is an essential first step.

The good news is that once you've sorted out the regulatory requirements, you can focus on building your commercial mortgage business with confidence.