Better credit means better chances
The most basic definition of a catalyst is a person or thing that causes a change.
Milton Barela is hoping his new venture will be a positive change. As the senior loan officer at Catalyst Lending’s brand new Los Lunas office, Barela brings 50-plus years of experience in the lending industry to the table.
While the bursting of the sub-prime mortgage bubble wreaked havoc on the housing and banking industries alike, Barela says things are slowly coming back.
“It’s getting better but the lending industry isn’t coming back to where it was,” Barela said.
In order for a mortgage to happen, there are three basic parties involved — a borrower, the mortgage banker or loan officer and the lender making the loan.
“I think we all got greedy,” he said of the time before the recession. “Appraisals were higher than real values, people were going after too much house and the lenders were letting them. That’s how we got the liar loans.”
Those three components are still a part of the mortgage process but now it’s harder to get that loan, Barela said. Now most lenders want potential borrowers to be pre-qualified, so they are assured new homeowners really are capable of paying back the loan.
The pre-qualification process starts with a prospective home buyer visiting a loan officer such as Barela. The loan officer will have them fill out a simple application and collect basic information, such as paycheck stubs and recent tax returns.
After that, Barela sends the information off to Catalyst’s main offices in Denver, where a processor reviews the application and the loan amount being requested. The processor sends it to the company’s underwriter, who double checks and verifies the information the applicant and loan officer submitted.
Barela said sometimes the underwriter will ask for more information or let him know if information is missing. Then in about seven days, a potential borrower should get one of three answers — a yes, a yes with conditions or unfortunately, a no.
“By doing this, people really understand they need to look at a house they can afford,” Barela said. “Sometimes they will need to work to get their credit score cleaned up.”
And a borrower’s credit score is an important factor that is considered when things such as interest rates on the mortgage are determined. If a person has made late payments on credit card accounts or other loans, that reflects negatively on a credit score, as do more significant financial hardships such as foreclosure and bankruptcy.
While sometimes all you can do is wait, as is the case with foreclosures and bankruptcy, Barela said sometimes a borrower can ask the three credit scoring agencies — Experian, Equifax and TransUnion — to “rescore” them.
“The company will look at the items reported and tell you how to improve your overall score,” he said.
For instance, paying off or reducing the balance on certain credit cards or loans can increase a score by a few points or in one case Barela said he saw a 40 point increase.
“It is something you have to ask for though; it costs about $35 for each request,” he said.
If your credit score is high as you can get it by paying down credit card and loan balances, then the waiting begins — typically three years for a bankruptcy and five for a foreclosure.
Barela encouraged potential borrowers to take the step of getting pre-approved for a loan, to make sure they know just how much house they can afford before they start looking and find their dream home.
“Sometimes people find it but they can’t afford it,” he said.
But if they can afford the home, Barela said lenders have a variety of mortgage options — conventional loans, first-time home buyers programs through New Mexico Mortgage Finance Authority, USDA, FHA and a new program that provides what are called Section 184 loans for Native Americans to purchase homes either on or off a reservation or pueblo.
In communities with 20,000 people or fewer, USDA loans can be had with down payments of zero to 5 percent again depending on the credit score.
Barela said he hopes to soon be able to offer construction to permanent loans.
And right now interest rates are very good, he said. He looked at rates on Aug. 19 and, for a borrower with a good credit score, a $250,000, 30-year loan would carry an interest rate of 4.375 and an annual percentage rate of 4.434 percent; on a 15 year term, interest runs at 3.625 and 3.672 APR.
The interest rate is the cost of borrowing money expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan.
An APR is a broader measure of cost to you of borrowing money. The APR reflects not only the interest rate but also the points, broker fees and certain other charges that you have to pay to get the loan, including certain closing costs. For that reason, your APR is usually higher than your interest rate.
Lenders are now required to disclose both the interest rate and APR of a loan to potential borrowers, Barela said.
With the bubble burst and new practices in place, Barela said the real estate market, and thus the lending industry, is starting to see some upward movement.
“It’s a small increase but it’s getting better,” he said.
According to the June report from the Greater Albuquerque Association of Realtors, Valencia County saw a bit of an upswing in home sales for the month of June. There was a 20.45 increase in sales for 2014 versus 2013 but in July there was a drop in the year to year comparison of 8.89 percent.
In Valencia County, GAAR tracks homes sales and prices in Belen, Bosque Farms and Los Lunas.
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