RSW
Welcome to Real Talk with The Agency Texas, I’m Randall Scott White. We're here today with Austin Foss, who is a loan officer and there's a lot of questions out there about just what it takes to get a home these days. Well, this is the guy who does this for a living every day, helping people either fix their credit or get their life back in order so that they too can become home owners. Austin, thank you for joining us.
 

AF
Of course. Happy to be here.
 

RSW
So what are the most common things that you hear and what is the advice that you most often find yourself giving people to get themselves back on track?
 

AF
So the first thing I would say is that you know, it's understandable that, you know, maybe your credit's down for some reason, but in the end you're not really all that far removed from hurting it. There's really just a few steps that you want to take in order to get it up. So you know, what we do here is we actually walk you through the credit report and tell you exactly what steps you can take to get that score back up and where you want it to be. Because if you follow a game plan that's set out for you, we've seen times where scores with jumped 50 or 60 points in a matter of just a couple months. And that's the difference between not qualifying for a home and getting into the home that you're looking for.
 

RSW
What are the immediate steps that somebody can take in order to get that 50 to 60 point spread eliminated so that they can qualify?
 

AF
So the most important thing it comes down to really is credit cards. And if you, let's say if you don't have any scores because you've never taken a credit and anything, then you need to establish credit. Um, or if you're, you know, if we look at your report and, and your credit cards have a high balance on them in proportion to what their credit limit is. And that's going to actually hurt your score. So where you're at with your credit cards or establishing credit cards is going to be the best way to affect your score. Say you have a $15,000 limit on your credit card, but your balance is at $13,000, well that's going to affect your score and you want to pay that down. Now, if you have a low score because you have some derogatory marks and you have no credit cards open, then you want to open a credit card and keep a low balance so that you have what's considered positive credit reporting and your name. So really it comes down to kind of what your credit card situation is looking like. And overall that's the quickest way to make your credit jump is to have credit cards with the low balance on them proportionately to what the actual credit limit is.
 

RSW
So when you're weighting the score of different types of things on somebody's credit report, what are the most besides credit cards, heavy hitting items that somebody would need to fix?
 

AF
So the heaviest hitting item of all is going to be a mortgage, right? Because that's usually the biggest law than you'll ever take out in your life, but we're trying to qualify for a mortgage so we're not gonna go there. Credit cards are going to help you the most more than anything else. There's other types of loans. There's student loans, there's auto loans, and installment loans. And those are the three that we see the most common, um, student loans. Obviously, you know, there's not a whole lot you can do about, you know, just because college is so expensive and you know, you got to pay for it somehow. But um, you know, installment loans are going to be, you know, anything that's not a credit card. Basically an auto loan is a type of installment loan. Um, and so what a lot of people do is they think if they have this, let's say $20,000 car loan with a $500 payment on it, that Oh, if I just pay it down to $8,000 remaining, it'll help me.

It actually doesn't because it would go off as a monthly payment. So if your monthly payment is not changing, actually paying it down doesn't really do you a whole lot of good for that purpose. It's good because you have less debt overall, but when it comes to qualifying for a home mortgage, it actually doesn't help you that much. So, um, you know, overall the best thing you could do is to pay down the credit cards. I mean, it sounds simple, but it really is the best step because not only is it gonna knock your help your credit score and push it up, but it's also going to affect your debt to income. You know, how much you owe per month and liabilities versus how much you make per month from your job.
 

RSW
And how does debt to income score when asking for over $100,000 to get a home.
 

AF
So like I mentioned, um, you know, buying a new home is going to be probably the biggest loan you ever take out. Um, and your debt to income ratio is what determines how much you're qualified for. Basically, the way it works is your credit score is kind of what gets you into the door. So to speak, and then your debt to income is what's behind that door, you know, how much you can qualify for at that point. So it's basically comprised of how much you make versus how much you owe each month in liabilities. Now that's not including cell phone bills or insurance or anything like that. It's consistent of any loans you've taken out. So anything credit cards, student loans or auto loans, basically the three main ones that we see, um, and generally you know, those, all of those added up have to consist of 50 percent of your monthly income.

So let's say you make $4,000 a month, you want those liabilities, the monthly payments on those liabilities to add up to about $2,000. That's usually about the max. Some programs that allow you to go a little higher, but for an overall guideline, that's kind of what you want to stick around. And so I'm paying down the credit cards because that's going to directly affect that monthly payment, which is what we base everything off of. You know, is going to be the best way to, to impacts that debt to income ratio positively or lending that balance run up and is going to impact it negatively. So, um, I know I've mentioned it a few times already, but those credit cards are really going to be the quickest way to impact your score, you know, positively, or if you let them go without paying, you know, negatively as well.
 

RSW
So really what it comes down to is when somebody's speaking with you, they are actively facing themselves and their financial path of, of either you need to fix what you've been doing or you're doing okay, let's just make a bit of improvements. You're really, it sounds like you're giving free financial advice.
 

AF
Um, you know, we can actually A let you know the general steps to take and B, actually tell you, you know, if you pay this car down to this or you get, you know, you pay this loan off completely, here's what it's going to put your score. We actually run a simulator here to tell you exactly what your score is going to be after taking those steps. And like I said, that's something we do here for free. Um, and you know, it's something that really has helped a lot of our clients. We've been doing this business for 15 years, so it's, it's helped our clients tremendously over over that timeframe.
 

RSW
So technically you are giving people goals to work towards in your simulator? I've, I've never heard of that actually. That's pretty cool.
 

AF
Yeah, it's a really good tool because it can literally show you exactly where it puts you. And, and like I said, off the top, I'm tackling your credit score is something where it can seem kind of scary and really the whole purchase process can seem kind of scary. But if you go into it with a goal in mind where you know, we, we can tell you exactly what steps to take, where to pay a car down to, which card to pay off, how to handle collections, all of that information. And if you look at it as kind of a checklist and you look at it as a playbook and a game plan and you follow that game plan to the tee and you know you're going to see that score start to jump. And for some people it jumps right away because it's just a couple of things.

And even if you're, you know, way away, it's still something that if you follow the plan, it's going to generally increase over time because if let's say your problem is a late payment, there's not a whole lot we can do or anybody can do, but the further you get away from that late payment, I'm the less, it's going to affect you over time. So that's one where, you know, as long as you're following the plan of, you know, paying the credit cards down and paying everything on time and the score is just going to naturally rebound. There's, there's really no two ways about it.
 

RSW
How do you take into account things that are limbo. Let's say somebody is disputing two or three different collections. How does that factor in?
 

AF
So disputes for us and really for any mortgage company are going to be something that we don't generally want to see. And here's why. So if you go to a credit repair agency, a lot of times they'll just put a lot of accounts into dispute and what it'll do is it will actually raise your score overall, but it's considered a hollow score. So picture it this way, picture your credit report on a piece of paper and you have all of your open trade lines. So let's say you've got a $500 collection with Verizon. You've got a $300 collection with Ford, and then you've got a, you know, let's just say a $6,000 collection with JC Penney. Um, it's a lot of clothes, but you know, we'll move on. So if you go to a credit repair agency and they put those three accounts in dispute, basically what they're doing is putting white out over those trade lines.

They're erasing them and making them invisible. Yes, your score does increase, but it's not like those collections are just vanished, but we have to do is there can't be disputes on your credit report or else we can't run the loan through our underwriting systems. So what you have to do is you have to get the disputes removed and so what that does is it kind of erases the white out and it brings it back on your credit report. So that's why I say the score is kind of hollow and it's disputing things does bring your score up, but it's superficial. It's not like you've really done anything to help your score and in order to qualify for a mortgage so there's disputes will need to get removed. It's just a federal guideline. It's not something that we do ourselves.
 

RSW
So somebody already had a credit report pulled and it's a certain number and they want to provide that to you, but you need to pull your own and that number may not match why? How's that work? What's that about?
 

AF
So a lot of people will take a look at their scores through a tool like Credit Karma or Freecreditreport.com or whichever different services are out there now. Um, and they're actually really good tools. Um, I would advise people to use them, just use them wisely because they gave you access to your trade lines with one of the three bureaus because there's three credit bureaus, Experian, Trans Union and Equifax. And so generally they get their information from transunion and they have access to all the trade lines, but they don't have access to all of the actual scores because those three bureaus have their algorithms patented for determining what your score is. And there are, they only allow companies that extended credit such as a credit card company of mortgage companies such as ourselves or in, you know, a car loan company to access those scores. What Credit Karma and those types of programs have to do is come up with their own algorithm and you know, you'll see you'll then be 30, 40, 50, 60, even 70 points off of what the actual score is. So in terms of monitoring your credit, it's an extremely valuable tool to keep track of, you know, if somebody's opening credit in your name, or just where everything stands, but the overall score is usually not going to be accurate in that regard.
 

RSW
People end up finding out that they've gotten a house hunting in the wrong order. They'll go look at some kind of portal, like the search portal at The Agency Texas, find a house fight, connect with them somehow to get the information on it and then find out after the agent has already taken them through, oh well we're not even qualified for this. Or they may be close to qualifying, why do you find that the majority of people end up doing it backwards?
 

AF
Well, you know, think about it. The house is the shiny objects that you see online. You see it on Zillow, you'd see it at the agency Texas portal. You see the for sale signs in the yard and you can see the houses and they look really nice. But what we've always advised our clients to do is to get prequalified first. Because what we've seen countless times as people will go and look at a house and they really, really like it and don't go to get qualified and either a, their credit score is too low and we have to do some work on it or be they won't qualify for as much as they want. And so then what it comes down to is they've wasted their time looking at something they didn't qualify for and they've wasted the agent's time showing them homes that there was just never a chance that they were going to get.

So really in Austin. Um, and a lot of the surrounding areas here in Texas and probably nationwide, I can't really speak for that at this time, but a lot of agents want to see that for your approval letter in hand because they don't want to waste their own time and they want to make sure they're speaking to a qualified buyer where if they liked the home, that preapproval letter is already in hand and they can put in an offer at that time. Um, because the market down here is so hot that you may see a home that you really, really like, and by the time you go get pre-approved, even if you do qualify for that home, it could be off the market the next day. Um, and that's especially during the summer where we're at now and the end of June, that's the case for the duration of the next couple months where it's just such a hot market. Kids are out of school and everything that getting preapproved, getting prequalified is the first step that you want to take in order to make yourself look stronger to the agent, but also to just save yourself a lot of time spent going out and looking at houses that you think you qualify for. But maybe it comes back that you don't for a variety of different reasons.
 

RSW
Well for sure because we have the best real estate agents in Austin, San Antonio and Houston here at the agency, Texas. But they can only do so much if somebody is not going to qualify. So I'm, I'm learning more and more that this pattern of purchase behavior is completely inverted. So I'm, I'm fascinated in learning more about what people can do to actually get into a home faster. I very much appreciate your time, your time here today. Austin, Foss, loan officer with Home Vantage mortgage. Thank you very much.