How to Form a Mortgage Company in South Dakota | Essential Steps

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South Dakota Mortgage Company

The mortgage industry plays a crucial role in the economy as it facilitates the dream of homeownership of South Dakota people. Forming a mortgage company can be a rewarding and profitable LLC in South Dakota. However, it requires a deep understanding of the industry, regulatory requirements, and the necessary steps to establish and run a successful mortgage company. This comprehensive guide will walk you through Forming a Mortgage Company in South Dakota and provide valuable insights to help you succeed in this competitive industry.

Webinarcare Editorial Team will help you gain knowledge through thorough research and market study. Before forming your South Dakota mortgage company, all the steps in this article must guide you.

How to Form a Mortgage Company in South Dakota

What is a Mortgage Company?

In South Dakota, a mortgage company is a business, often structured as a Limited Liability Company (LLC), that specializes in originating, funding, and servicing mortgage loans for homebuyers and property owners. These companies play a crucial role in the local housing market as they facilitate obtaining a mortgage loan for individuals looking to purchase, refinance, or invest in residential properties.

The South Dakota Division of Banking regulates mortgage companies in South Dakota and must obtain the appropriate licenses to operate legally. There are different types of mortgage companies, such as mortgage brokers, lenders, and loan originators, each with specific roles and responsibilities within the mortgage industry.

  • Mortgage brokers act as intermediaries between borrowers and mortgage lenders, assisting homebuyers in finding the Best South Dakota Small Business Loan product and terms to suit their needs.
  • Mortgage lenders are financial institutions that provide the funds for mortgage loans directly or through a network of mortgage brokers.
  • Mortgage loan originators are individuals employed by mortgage companies who work with borrowers to process and submit loan applications, negotiate loan terms, and complete the mortgage transaction.

Operating a mortgage company in South Dakota requires a deep understanding of the local housing market, industry regulations, and the various mortgage products available to borrowers. By providing valuable services and expertise to homebuyers and property owners, mortgage companies in South Dakota play a vital role in helping individuals achieve their homeownership dreams and supporting the state’s overall economy.

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How to Form a Mortgage Company in South Dakota

Forming a mortgage company in South Dakota can be complex, but the following step-by-step guide will help you navigate the requirements and regulations.

Step 1: Understanding the Mortgage Industry

The mortgage industry in South Dakota is governed by various state and federal laws and regulations designed to protect consumers and ensure a fair and stable market—the primary regulatory authority for mortgage companies in South Dakota Division of Banking. The South Dakota Division of Banking is responsible for licensing and regulating mortgage companies and their activities within the state.

Before starting a mortgage company in South Dakota, it is essential to understand the different types of mortgage licenses and activities regulated by the South Dakota Division of Banking. These include:

Mortgage BrokerA person or entity that, for compensation or gain, assists borrowers in obtaining mortgage loans from third-party lenders.
Mortgage LenderA person or entity that originates, funds, or services mortgage loans.
Mortgage Loan Originator (MLO)An individual who, for compensation or gain, takes mortgage loan applications or offers or negotiates terms of mortgage loans.

It is suggested that you speak with a legal professional before you begin setting up a mortgage company. They’ll understand what’s best for you and your future company. To safeguard your personal assets from business debts, you can always start an LLC in South Dakota.

– WEBINARCARE EDITORIAL TEAM

Step 2: Forming a Legal Entity

Once you clearly understand the mortgage industry and the specific license type you want to pursue in South Dakota, the next step is to form a legal entity for your mortgage company. The most common types of legal entities for forming a mortgage company in South Dakota include:

Sole Proprietorship

This is the simplest form of business entity, where an individual operates the South Dakota mortgage company under their name or a trading name. There are no formal registration requirements, but the owner is responsible for all business debts and liabilities.

Partnership

A partnership is a business entity where two or more individuals come together to form a mortgage company. All partners are personally liable for the business’s debts and liabilities in a General Partnership. Limited Partnerships and Limited Liability Partnerships offer some protection for partners from personal liability.

Limited Liability Company (LLC)

An LLC is popular for forming a mortgage company, combining a corporation’s liability protection with a partnership’s tax flexibility. LLC owners, known as members, are not personally liable for the business’s debts and liabilities. 

Corporation 

A corporation is a legal entity separate from its owners, known as shareholders. Starting a corporation in South Dakota provides liability protection for its owners and is subject to corporate taxation. Forming a corporation involves more administrative requirements and fees than other business structures. There are different types of corporations, such as S and C corporations, each with tax implications and requirements.

To form a mortgage company in South Dakota, consult a Business Attorney in South Dakota to understand the state’s requirements for forming a legal entity and obtaining necessary licenses and permits.

Step 3: Developing a Business Plan

A well-crafted business plan is essential for the success of your South Dakota mortgage company. The business plan should outline your company’s mission, vision, objectives, target market, competitive analysis, marketing strategy, financial projections, and management structure.

Your business plan will serve as a roadmap for your company’s growth and help you secure financing or investment to start and grow your business.

Step 4: Register Your Mortgage Company

You must register your South Dakota mortgage company. Here are the guidelines you must accomplish before obtaining the licenses and permits.

Choose a Business Name

Choosing a business name for your South Dakota mortgage company involves several steps. Here are some guidelines to help you choose an effective name:

  • Your business name should reflect the brand identity you want to convey to your potential clients. Consider your target audience, your company’s values, and the services you offer when choosing a name.
  • Including words related to the mortgage industry in your business name can help potential clients understand the nature of your business. Some keywords to consider are “mortgage,” “loan,” “home,” “finance,” or “lending.”
  • Including the name of South Dakota in your business name can help establish a sense of familiarity and trust with potential clients from the same state. For example, “South Dakota Mortgage Solutions” or “South Dakota Home Loan Experts.”
  • A shorter, easy-to-remember name can make it easier for potential clients to recall your business when they need mortgage services.

Remember to check the availability of your chosen business name with the South Carolina Secretary of State Business Filings Search to ensure that no one else has trademarked the name. There is a complete guide on South Dakota Business Name Search for you to have a mortgage company name. You can register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for South Dakota DBA (doing business as). 

Once you’ve settled on a unique name, you can proceed with choosing a Registered Agent down to obtaining any required licenses and permits.

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Choose a Registered Agent

A Registered Agent is a person or entity designated to receive important legal documents and correspondence for your business. In South Dakota, every business entity, such as an LLC or a corporation, must have a Registered Agent with a physical address within South Dakota. The Registered Agent’s primary role is to ensure that your business complies with state regulations and be available to receive any legal notices or official government correspondence.

In South Dakota, the cost of having a Registered Agent ranges from $50 – $150. However, suppose you are still wondering how to hire a Registered Agent. You can also serve as your Registered Agent, appoint a friend or family member, or hire a professional South Dakota Registered Agent Services.

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File for Articles of Organization or Articles of Incorporation

If you form an LLC for your South Dakota mortgage company, you must file the South Dakota Articles of Organization, which costs $150. However, you must file the Articles of Incorporation if you form a Corporation for your South Dakota mortgage company. 

Including accurate and comprehensive information on this page is essential since mistakes or inconsistencies may delay or dismiss your filing.

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Obtain an Employer Identification Number

You must first obtain an Employer identification number (EIN) in South Dakota if you will open a bank account or hire an employee for your South Dakota mortgage company. 

The application of an EIN in South Dakota can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone (International Applicants) – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

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Step 5: Obtaining Licenses and Registrations

You must obtain a license from the South Dakota Division of Banking to operate a mortgage company in South Dakota. The licensing requirements vary depending on the mortgage activity you plan to engage in (e.g., mortgage broker, mortgage lender, or mortgage loan originator).

Here are the general steps to obtain a mortgage license in South Dakota:

nmls

  1. Complete a license application through the Nationwide Mortgage Licensing System (NMLS). The NMLS is a web-based system that allows mortgage companies and MLOs to apply for, update, and renew their licenses online.
  2. Complete pre-licensing education and pass the NMLS national and state-specific mortgage exams.
  3. Submit fingerprints for a criminal background check and authorize a credit report through the NMLS.
  4. Obtain a surety bond in an amount specified by the South Dakota Division of Banking. The bond amount will depend on the type of mortgage license you are applying for and the volume of your mortgage loan activity.
  5. Provide proof of financial responsibility, such as a minimum net worth or a fidelity bond, as required by the South Dakota Division of Banking.
  6. Pay the applicable licensing and application fee of $500.

In addition to the mortgage license, you may also need to obtain other licenses, permits, or registrations, depending on your business activities and local requirements. The business license fee in South Dakota ranges from $50 – $300.

Step 6: Setting Up Your Office and Infrastructure

A professional and well-equipped office is essential for the smooth operation of your South Dakota mortgage company. Choose a suitable location for your office, considering accessibility, visibility, and proximity to your target market. Ensure your office complies with the Americans with Disabilities Act (ADA) and other local building codes and regulations.

Step 7: Hiring and Training Staff

Your South Dakota mortgage company’s success will largely depend on your team’s quality and expertise. Hire qualified and experienced professionals, such as mortgage loan originators, processors, underwriters, and administrative staff. However, ensure that your team members meet the necessary licensing and education requirements before hiring an employee for your South Dakota mortgage company.

Step 8: Marketing and Growing The Company

A well-thought-out marketing strategy is crucial for attracting clients and growing your mortgage company. Some effective marketing tactics for your mortgage company include:

  • Build a professional website showcasing your services, expertise, and testimonials from satisfied clients.
  • Leverage social media platforms to create brand awareness and engage your target audience.
  • Networking with real estate agents, builders, and other industry professionals to build referral partnerships.
  • Participating in local community events and sponsoring charitable causes to create a positive brand image.
  • Offering educational content, such as blog articles, webinars, and seminars, to provide value to your clients and establish yourself as an expert in the mortgage industry.

FAQs

What are the requirements for starting a mortgage company in South Dakota?
You must register with the National Mortgage Licensing System and complete specific education and testing requirements.
How do I get a mortgage broker license in South Dakota?
You need to register with the National Mortgage Licensing System and pass the SAFE Mortgage Loan Originator Test.
Can I operate a mortgage company in South Dakota with an out-of-state license?
No, you must have a license specific to South Dakota.
What is the application fee for a mortgage broker license in South Dakota?
The application fee is currently $980.
Is there a time limit to complete the licensing process for a mortgage company in South Dakota?
The licensing process should be completed within six months.
Are there any financial requirements to start a mortgage company in South Dakota?
Yes, you need to maintain a surety bond, which is calculated based on the size and type of the loan.
What is the education and experience requirement to become a mortgage broker in South Dakota?
You need to have a high school diploma and complete the necessary mortgage broker coursework.
Can a mortgage broker in South Dakota work for multiple lenders?
Yes, a broker can work as an independent contractor for multiple lenders.
Are there any annual reporting requirements for mortgage brokers in South Dakota?
Yes, the company needs to maintain accurate reporting and documentation, which includes annual reports.
How often do mortgage brokers in South Dakota need to renew their license?
Licenses expire every year and must be renewed annually to continue operating legally.
What is the minimum credit score requirement to start a mortgage company in South Dakota?
There is no minimum credit score requirement to start a mortgage company in South Dakota.
Are there any bonding requirements for mortgage brokers in South Dakota?
Yes, mortgage brokers must practice with a surety bond to guarantee their delivery.
Can a mortgage broker in South Dakota refer clients to an affiliated business, such as a home inspection company?
Yes, as long as the referral is disclosed to the client and free of any fraudulent as well as persuasive activities.
Are there any advertising regulations for mortgage companies in South Dakota?
Yes, you must present ads with honesty including promissory or the security you’re planning.
What are the foreclosure laws unique to South Dakota?
South Dakota doesn’t require lenders to wait for a certain frame of time before foreclosing in a non-judicial foreclosure.
Can a licensed loan originator work remotely for a mortgage company in South Dakota?
Yes, loan originators can work from another location as long as they have registered through NMLS and follow regulatory procedures.
Do I need to register as a mortgage broker with the Real Estate Commission in South Dakota?
No, you only need to be registered with the National Mortgage Licensing System.
What is the duration of the financial statement to qualify a mortgage broker license in South Dakota?
Not more than 90 days.
Are there any specific guidelines for financial reporting by mortgage brokers in South Dakota?
Yes, the South Dakota Division of Banking specifies that mortgage brokers must provide an itemized description of their finances.
How do I register my mortgage company in South Dakota?
You may apply through the Nationwide Mortgage Licensing System (NMLS) to register your mortgage company.
Do all mortgage companies making predatory loans have to pay back consumers in South Dakota?
No, there is no predatory policy of sustaining providing weak money or financing.
How long does it take to obtain a mortgage broker license in South Dakota?
The length of time it takes to obtain a broker license varies according to application method or issues in application process.
Can a foreign national become a licensed mortgage broker in South Dakota?
No, they must be legal citizens in the United States to obtain the license.
Are there any loans that are exempt from licensing requirements in South Dakota?
Only the Federal government loans are exempt from South Dakota licensing rules.
Can I get a mortgage broker license if I have a prior misdemeanor in South Dakota?
The law doesn’t prevent to get a broker license if misdemeanor is provided in a transparent and honest way when the application will be processed
Are there any changes to foreclosure laws in South Dakota?
No, currently there are no upcoming changes in the foreclosure orderings and regulations in South Dakota.
Are there any permanent minutes of evidences for licensing status in South Dakota?
Yes, those who passed the mortgage broking test and have a license renewed can always peacefully advertise they offer stable mortgage brokerage services because there are regulations documents stating exactly that.
What factors determine how surety bonds for mortgage brokers are calculated in South Dakota?
Various aspects determine the surety bond amount of the mortgage broker, such as, the loan value and credit history.
Can a mortgage company operate in South Dakota without a brick-and-mortar location?
No, all affiliated businesses practicing loaning in South Dakota needs to claim a by-state appropriate office from where they wouldn’t exclusively offer a mortgage business through mail correspondence clientele instead should visit the prospective office/home loans.
What are the requirements to form a mortgage company in South Dakota?
Registered agent, Articles of Incorporation/Formation, FinCEN registration, background check, and $25,000 bond.
How long does it take to form a mortgage company in South Dakota?
It typically takes 4-6 weeks for licensing and bonding authorities to process applications.
Is South Dakota a good state to start a mortgage company?
Yes, South Dakota has a business-friendly environment and a growing demand for affordable housing.
Can a non-resident start a mortgage company in South Dakota?
Yes, as long as they have a registered agent in South Dakota and comply with all state licensing requirements.
What types of mortgages can a South Dakota mortgage company originate?
Both conforming and non-conforming mortgages, as well as specialty loan programs offered through government agencies, may be originated in South Dakota.
What is the typical salary of a mortgage loan officer in South Dakota?
The average salary for mortgage loan officers in South Dakota is around $70,000 per year.
Do mortgage companies in South Dakota need to be licensed?
Yes, mortgage companies and their employees are required to be licensed by the South Dakota Division of Banking.
Can a mortgage broker also be a loan officer in South Dakota?
Yes, as long as they are appropriately licensed and operate in compliance with applicable regulations.
Is there a minimum net worth requirement for South Dakota mortgage companies?
Yes, mortgage businesses are required to maintain a minimum net worth of $25,000 at all times.
How are mortgage company licenses renewed in South Dakota?
Licenses can be renewed online through the NMLS system and must be renewed annually by December 31st.
Are mortgage loan officers required to complete continuing education in South Dakota?
Yes, licensed mortgage loan officers must complete 8 hours of continuing education each year.
What is the role of the South Dakota Division of Banking regarding mortgage companies?
The Division of Banking is responsible for licensing and regulating mortgage companies and ensuring compliance with state and federal regulations.
What types of records must a mortgage company in South Dakota maintain?
Mortgage companies must maintain records of loan transactions, loan applications, and funds received and disbursed in connection with mortgage loans.
Is South Dakota a recourse or non-recourse state for mortgage loans?
South Dakota is a recourse state, which means that a lender may pursue the borrower for any deficiency after a foreclosure sale.
Can a South Dakota mortgage company foreclose on a property?
Yes, mortgage companies are able to foreclose on properties for which they hold a mortgage lien in South Dakota.
Are mortgage companies in South Dakota subject to federal regulations as well as state regulations?
Yes, mortgage companies must comply with both federal and state regulations, including the Truth in Lending Act and the Real Estate Settlement Procedures Act.
Can a mortgage company charge a prepayment penalty in South Dakota?
Yes, but the amount and length of time for a prepayment penalty must be specified in the loan agreement.
Are mortgage lenders required to perform property appraisals in South Dakota?
Yes, an appraisal is typically required for a mortgage loan, and lenders are required to follow federal appraisal standards.
Can mortgage companies in South Dakota charge higher interest rates for subprime borrowers?
Yes, as long as the rates are disclosed in accordance with applicable federal and state laws.
What is the penalty for unlicensed mortgage activity in South Dakota?
Fines may be imposed along with cease and desist orders and possible disciplinary action.
Can a South Dakota mortgage company sell my loan to another lender?
Yes, mortgage loans are commonly sold to other lenders or investors and may be packaged as mortgage-backed securities.
Is mortgage insurance required for mortgage loans in South Dakota?
Mortgage insurance may be required for loans with less than 20% down payment or equity.
Can a mortgage company charge an application fee in South Dakota?
Yes, mortgage companies in South Dakota may charge reasonable fees to process mortgage loan applications.
Can a mortgage company require the use of a specific title company in South Dakota?
No, federal law prohibits mortgage companies and lenders from requiring the use of a specific title company.
Are mortgage companies in South Dakota allowed to charge a rate lock fee?
Yes, fees to lock in interest rates are permitted, but must be clearly disclosed in the loan agreement.
Can mortgage companies in South Dakota charge a late fee for missed mortgage payments?
Yes, mortgage companies can charge a late fee for payments made after the due date.
Are mortgage companies in South Dakota required to provide a Good Faith Estimate?
Yes, lenders must provide borrowers with a Good Faith Estimate of loan fees within three days of loan application.
Is mortgage interest tax deductible in South Dakota?
Yes, mortgage interest may be tax deductible on federal and state income tax forms.

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Conclusion

Forming a mortgage company in South Dakota can be fulfilling and profitable. By understanding the industry, forming a solid business foundation, obtaining the necessary licenses, and implementing effective marketing strategies, you can build a successful mortgage company that helps make the dream of homeownership a reality for countless individuals and families in South Dakota.

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