Frugal Challenge: Don’t Buy Snacks

I am going to be the first to say that I am the least opposed to having a mid-afternoon treat. A firm believer that chocolate fixes all things, you won’t see me denying a cupcake when it’s sitting on the kitchen counter for the taking. My family knows that once you set out the dessert at a holiday gathering, I’m going to be first in line holding an empty plate.

That’s just the problem. It’s difficult to say no to something when it’s taunting you from right underneath your nose. However, it is very easy to pass up on something that you never knew was there. So here is my next, and long-awaited, frugal challenge for the month of October. Stop buying snacks!

Related Posts:

This challenge is not a practice that just recently came about in our household. In fact, it is a habit that we are quite accustomed to. The origin story goes way back to the moment I was diagnosed at age 22 as pre-diabetic, despite the fact that I weighed 100 pounds. You’ve oft heard the saying, “Never judge a book by its cover”? Well, it’s true. A skinny, young girl can be diabetic. At 22, my body was doing a great job at metabolizing all the sugars that I was consuming, but it was also already starting to fail. Without getting too extremely technical, having a normal blood sugar level does not mean that your body is not suffering. Your body can be fighting to keep itself healthy by pumping out a TON of insulin to get rid of those sugars, but eventually, your handy dandy pancreas will not be able to keep up with the work load, and it will start to fail. By the time you notice a high blood sugar level, it is already too late. Your body has had enough.

So when I was diagnosed with pre-diabetes, I knew something had to change. Having been trained to eat ice cream for breakfast, lunch, and dinner (yes, I have done that all in the same day… quite frequently), and growing up in a household where snacks can be found in the pantry every single day, I knew that it was my diet that was causing my body to suffer. I was taught that soda was exchangeable with water, and that juice was “healthy”. Every day after school, my mom would require us to eat merienda, which translates to a snack in Tagalog. Unfortunately, the snack list included chips, cookies, cereal, ramen, mac-and-cheese, and more thoroughly processed goods.

I was in my first year of dental school when I cut out sugar from the grocery bill. In doing so, I nixed mostly every snack possible. I not only said goodbye to my beloved cartons of ice cream, but also the chocolate bars and the cookies and the juice. I even cut out most cereals, with the exception of Cheerios (and not the Honey Nut kind). It was here that I first learned that the most efficient way to cut down the grocery bill is to get rid of junk food. I was grocery shopping for Mike and I, swimming in student debt, and I proposed that we limit our combined grocery bill to $50 a week, a rule which we still stick to to this day. $50 covered at least six days worth of breakfast, lunch, AND dinner for two. That’s how I got through dental school. But that means our limitations couldn’t stop at sugar. We also cut out chips, frozen fries, pizza pockets … even cheese and crackers.

Once we did that, we realized that $50 a week was completely doable. And I am not talking about eating spam or peanut butter sandwiches every day. I am referring to decent, home-cooked meals that taste better than going out to eat! Off course, there are many more perks to cutting out snacks than simply hitting a grocery budget. Here are the top 5 reasons why you should cut out snacks, in general.

TOP 5 REASONS TO CUT OUT SNACKS

  1. Decrease spending. Have you noticed that snacks cost so much for what you get? A protein bar for a few dollars?! A box of fruit roll ups for $5?! You’re practically paying top dollar for useless carbs that will shorten your life span or increase the chances of you needing to pay for medical bills to treat underlying conditions because of unhealthy food choices during your hay day. When you put it that way, all of this pointless eating costs more than the food itself. You may want to cut out snacks to decrease overall spending, for now and for the future.
  2. Cut down on sugar. In case you haven’t heard, all processed foods contain tons of added sugar. It doesn’t matter if they sell it in the form of “agave sugar“, it is still processed sugar that is unnecessary. Cutting down sugar was my number one reason to cut down on snacks. But there may be other reasons as well..
  3. Cut down on cholesterol. My extended family has a history of high cholesterol. When I think about how much salt lies in my once most favorite snacks (ie: Cheetos, Ruffles, French Fries, Ramen, etc), I can feel my arteries clogging up. Decreasing snacks can really do a body good.
  4. Become more productive. Let’s face it. A majority of us use snacks as a means to distract us from work. I remember the days when I needed to study for a test, and suddenly, my mind focuses on food when it should be focusing on the textbooks in front of me. How often do people at work take “snack-breaks”? Work-at-home-bloggers, you know what I am talking about. When I cut out snacks, I find that I eat more regularly. Three meals a day at approximately the same time. I stop “craving” a lot of things, which allow me to focus on my work, whether that’s dentistry or blogging.
  5. Help planet Earth. A majority of snacks are packaged in plastic. When we cut out plastic from our grocery list, we were already primed for success, because we have been cutting out snacks for a few years. Think about it. Individually packaged candies, bags of chips and cookies, even popcorn is in a paper bag wrapped in a plastic bag! We cut out frozen foods completely, as well as jugs of orange juice and bottles of soda. We aren’t only helping our bodies, but we are also helping the planet too.

Off course, there are many more reasons not to eat snacks. But these, for me, are my top five. So try it out for the month of October! Extend it past your grocery list and avoid buying snacks at all times. Do you need that mid-day coffee from Starbucks, or that extra bag of chips from the gas station to satisfy you during the commute home? If you do go out for dinner, is it necessary to get the appetizer and the dessert? Or a cup of soda, even though it’s unlimited re-fill? I know that at first, habits like these are hard to ditch. But try it for a month, and see how much you actually save. You may be extremely surprised, in a good way.

 

Property Ownership: Happiness Does Not Lie in Double Vanity Sinks

I never thought there would come a day where I would have to write about double vanity sinks. I guess that is just the space this blog is taking me to. Excuse my short interlude amongst my usual property ownership writing, but I am seeking respite from a thought that refuses to leave my mind. I turn to writing it all out, and (hopefully) letting it go. It has something to do with double vanity sinks, and everything to do with people’s concepts of what makes this life worth living.

We looked at two properties (this time around) before we decided on the one to buy. The first time we were looking at a live work loft, our agent was walking through the home with us, while the seller’s agent awkwardly stood downstairs. We were exploring the third floor where the bedroom and bathroom resided, a floor plan quite similar to the one we were renting. I walked into the newly renovated bathroom and commented, or rather, exclaimed, how nicely done it was. Our super rad real estate agent, who we love, flippantly added to the appraisal with what I presume she thought all prospective buyers wanted to hear.

She said, “The nice thing about the bathroom is that it has a double vanity.” She looked at us expectantly and then followed up with, “Do you have a double vanity in the bathroom you currently rent?” When we said we didn’t, she said, “That’ll be a nice upgrade then!”

I was quite confused by her comment, but smiled and continued asking questions about the home and moved on with the rest of the tour. It stuck with me as nothing but a funny comment, and it was pushed to the recesses of my mind.

Until our dear friend helped us move in to our new place (the one we actually picked) two Sundays ago. (How time flies! Was it already two Sundays ago??) After all the lifting, sweating, scuffling, and off course, gorging on food to replenish depleted energy stores, we were sitting on the couch catching up on each other’s lives. A thing that used to be an everyday occurrence in college but that you miss once everyone finds their place in the world. He excused himself to use the restroom and returned to the couch with a big smile on his face. “I like how you have double vanities. So nice!”

Mike and I kind of did this super obnoxious look that we give each other sometimes, at the risk of being borderline rude, and we smiled. We then proceeded to explain how we didn’t think it mattered how many sinks were in the bathroom, as long as there was a sink in the house. Our friend assured us that it’s because we have not experienced “double sink life” just yet, and that we would soon change our minds.

So I asked, “What is so special about double sinks?!” Quite in a similar intonation as the text implies.

He kindly informed me that it was nicer to have one’s own. He said that we each have our own stuff that we want around the sink, and it would be nice to have our own place to store them. He alluded to the stereotype that women want to keep a ton of products around their sinks, and men have shaving supplies to worry about. Plus, it would be such a convenience now that we don’t have to share a sink in order to brush our teeth.

After one week of living in this space, I still don’t get it.

First off, let me show you a picture of our sinks.

DSC08939.JPG

DSC08942.JPG

As you can see, the only thing on it is a pump for hand soap, and Mike’s toothbrush. There is absolutely no other thing on the sink.

Secondly, what’s wrong with sharing? We can take turns brushing our teeth. Or, as is more often case, brush at the same time, but take turns using the sink. We tend to roam around the home while brushing anyway, and old habits die hard. Usually, I’ll accumulate my drool much more quickly than Mr. Debtist does, and I am using the sink before him. If anything, it makes for good laughs, moving each other aside in order to expectorate. It’s even funnier when we don’t quite make it.

Ultimately, I think I know what bothers me most. It circles back to when our real estate agent assumed that double vanity sinks is what buying a home is about. Or the inclination that double vanity sinks lead to a happier life. It relates to the concept that “more is better”.  And it still implies that convenience is key to happiness. I kinda miss our single sink. I miss pushing each other out of the way, and trying to steal water from over each other’s hands. I talk a lot about “less is more” but in doing so, I am feeding into this idea that more is better. Less is definitely LESS, but that can be a good thing, too.

Deciding whether a home is the right home for you does not depend on double vanity sinks. Sinks do not even define “an upgrade”. What’s the point of “upgrading” to double vanity sinks if, say, the mortgage is too much for you to comfortably pay. Doesn’t that downgrade you to a more stressful life? Why do people use sinks as a measure of how nice a home is. Shouldn’t we comment on other things? Like, how kind the neighbors are, for example. Or how it cuts your commute to a mere three blocks (yes, that’s my commute to one of my offices now. It’s glorious). I do admit, I may be bent-out-of-shape and hung-up on some small, insignificant thing. But I have got to say that as long as people are measuring worth in terms of double vanity sinks, there’s going to be a lot of happiness-searching without actually any happiness-reaching in this world.

 

Property Ownership: Overcoming Buyer’s Remorse

I was lying in bed on a Sunday night, exhausted from a grueling week of spending every spare moment readying the house into a home. My heart won’t seem to slow down, my mind won’t seem to shut up. We’ve moved every big piece of furniture and a majority of our few belongings that morning with the help of a brother and a close friend, yet there’s still a million things to think of. My brain couldn’t help but tick through the to-do list on repeat, as I try to clear my mind and get some shut eye. Then, it started to turn onto a bleak subject.

I turned to Mr. Debtist and asked, “What have we done?

As the city street lamps glared into our upstairs window, and I heard the shuffling downstairs from an equally unsettled roommate, I started to miss the curtained windows at our previous place. I looked outside to the main street below, and I started to miss the buildings that I frequently stared at. I sat up in bed and set my feet down on the cold cement floors, and missed the tufts of carpet.

I’ve moved ten times before turning thirteen, and I’ve moved a total of sixteen times in my life. Each time, I go through this phase of longing for what once was. The first night is always the most difficult, and I knew that. However, this was different. As if settling into a new environment wasn’t emotionally draining enough, there is the added mental weight of knowing just how much we’ve put into this new home. Invested wouldn’t be the correct word. Gambled might be a better term. On the first night, I feel like the most appropriate way to describe the feeling is a feeling that you just lost it all.

Here’s something every new home-owner experiences. Buyer’s remorse. And it was coming over me like grey skies, gathering for a downpour. If it wasn’t for Mr. Debtist reaching out a hand and telling me “It’ll be okay”, who knows what kind of tumultuous storm might have been unleashed that night.

Related Topics:

When a deal closes on the home, the seller tends to feel like their house was taken away from them at a bargain rate, and the buyer may feel like they were jipped of their money’s worth. It is normal for both sides to feel this way. However, whereas seller’s remorse will likely dissipate in the upcoming month, buyer’s remorse will have the audacity to do its best to linger. Buyer’s remorse is way more complicated, since it is being compounded by other anxieties, most of which have nothing to do with the actual home. Anxieties that involve job stability and its correlation with the ability to pay a mortgage. Anxieties about someone’s health failing, and the complications of trying to balance a home loan with medical bills. Anxieties about the market crashing, or a natural disaster striking. Anxieties about the world collapsing.

While everyone may suffer from a momentary panic attack about their most recent home purchase, it will be unfortunate to have these same worries follow you forever. In the mildest of cases, the remorse is nothing a few aspirin tablets can’t handle. Or in my case, a good night’s sleep. But for others, the thought is so ravaging that they try to break the contract.

Amidst all of this, we center on one single fact: you’re buyer’s remorse at its core is nothing but raw, naked fearThis fear comes from your perception of the value of the home. How do you know if this is you? The symptoms are pretty common, and very easy to spot. Are you doing any of the following?

  • Reading real estate listings more intently than you did before signing the contract. You spend your days searching for similar or nicer homes with lower asking prices.
  • Continue to tour open homes. Don’t be surprised if you see remorseful sellers at these same open homes.
  • Endlessly discuss your purchase with your friends, neighbors, business associates, and any being with two ears. You want to probe other people for their opinions on your home-buying actions. You will likely take anyone who confirms your suspicions as telling you the truth, when in reality, they likely have no idea about anything regarding the current market.

Physically and emotionally drained yet? Because you will be, if you keep this up. It’s enough to make any human go bonkers. Hopefully, you discover soon enough that your fears are groundless. Here’s the real truth.

Facts defeat fear.

The faster you get to the facts, the less you’ll suffer. Overcoming buyer’s remorse relies heavily on your trust in the decisions you’ve made when purchasing your home.

As explained here, a home can have more than one correct price. Pricing and negotiating are arts, not sciences. Never mind the asking price. As long as the purchase price is in line with the sale prices of comparable homes, you’re in the clear! Read up on how to know a home’s market value.

To learn more about home buying, use the book we used.

When I woke up Monday morning, I turned to my side of the bed and stared outside the windows to a crazy skyline, and clear skies, thinking to myself how much I love our new home.

IMG_0998-1.jpg

Dear College Kid: Pursuing Medicine Will Not Get You to Financial Independence Faster

Dear College Kid is a series I decided to write to my younger self. I would send them too, if I could somehow teleport myself via time machine to my late teens and early twenties. I hope other college kids find these letters, and garner some foresight that I myself had lacked. I hope it changes their lives.

Dear College Kid,

Have you ever heard of the term FI? More importantly, do you know of the FIRE community? Standing for “Financial Independence, Retire Early”, FIRE is a concept that aims for the option to be free from needing to spend forty years of your life working. Not to be confused with your life’s work, FI aims to free people of your job, if and when you choose to do so, in order to do your life’s work.

What I am here to tell you is this. If you’re dream is to pursue FI, then the medical profession is not the best, most practical route. I’m a dentist, who graduated from dental school at age 26 with more than half a million dollars in student debt. Now imagine being a doctor finishing residency at age 30, or an oral surgeon finishing at age 34. What you have as a college kid that I no longer do is time on your side. Time to get a head start, time to reach freedom more quickly and efficiently. Time to start opening doors.

At 21, I had no idea FIRE existed. It’s unfathomable for me to even think that I would have understood that work is not necessary in order to live a good life. A 21 year old graduating with zero (or very little) student loans, pursuing a desk job and saving  their income will have a 5-10 year head start on a 30 year old medical professional graduating with hundreds of thousands of student loans and saving none of their income because it is all tied up in debt. I will start at 36 years old at $0 in the bank if I spend all my income right out of school and funnel it to paying down my student loans (something I’ve talked about before). Meaning, the 21 year old with the desk job will have 15 years ahead of me in savings. On top of that, those savings have been racking up compound interest for 25 years. Assuming a moderate 6-7% return rate, those 15 years makes a whole heck of a lot of difference!

Off course, if you are pursuing the medical field, I am not dissuading you entirely, if it is what you WANT to do. The medical field is great! I love my job, but that’s because I did not go into it for the money. If you want to become a medical professional because it’s what you want to do for a long time, then by all means, you will be very happy! If you want to enter the medical field because you want to be RICH and that’s your goal in life, then you will be successful. BUT, if you are pursuing freedom or FIRE, and you think the medical field will get you there quicker because of the higher salary, you are incorrect. There are people in the FIRE communities who retire at 30 years old. If you go into the medical field, unless you have relatives that can pay for your entire tuition and you graduate debt free, well, you’ll still be at net-zero at 30 years old, but at least you have the means to get to FIRE by mid-to-late thirties perhaps. Most parents, however, cannot support med school, and if you graduate with a medical degree AND a ton of student debt, then you’ll be reaching FIRE later than your other FIRE friends. See what I mean?

This does NOT mean, pursue a desk job that you hate in order to reach FI. We reach for FIRE in order to be happy. There is no point putting yourself through misery in order to get to FI because you’ll be giving up happiness in order to do it. Some people say, “Well, I’ll just put in the work and hate my job but get to FIRE faster and THEN I will be happy.” But will you really, though? Reaching the end and never working a day in your life does not guarantee you will be happy. True FIRE pursuers recognize that it isn’t about the end goal, but the journey. It’s about gaining your freedom in the future, without giving up your freedom now. Otherwise, you’ve read FIRE all wrong.

Alternatively, FIRE is not entirely about Retiring Early. It’s about having the option to not work at a job, in order to pursue something else in life that will lead to more happiness. Ultimately, this all boils down to entering a profession for the right reasons. If you find a profession you love, you may not need to retire at all. I find myself happier than a lot of my colleagues, some of whom have only been out a few years and are already “sick of it”. They want out! Unfortunately, they are far from being free because of their lifestyle, or their debt, or a combination of the two. I am happier because I did not enter the field solely for money. I am happier because I do not need as much money in order to live, and can therefore choose how much of my life I need to give up in order to live a happy one. As I’ve said many times before, having money dictate the way you live your life is not a good thing. Whether that’s a lack of money, or a plethora of money. My dream is to free myself from student debt, go FIRE, and eventually travel the world and work for free as a dentist in third – world countries. To give back to communities that dentists never touch. I will likely never be “rich”, but my life will be. I am very, very happy, because I am doing what I love.

So in summary, enter the medical field if it is something you are very interested in or really want to do. (Sage advice: enter ANY profession because it’s what you want to do.) Do NOT enter the medical field, thinking it is the quickest way to get you to financial independence. It’s not the fastest, and it’s not the easiest, either.

For those just hearing about FI, here are a few of my favorite blogs and podcasts:

Welcome to the rabbit hole.

Property Ownership: Taking Renovations Nice and Slow

Buying a home comes with so many strings attached to your emotions, and its got you moving in all sorts of directions. One of which is this desire to create your fantasy dream home, RIGHT AWAY. In this post, I am going to avoid digging into the recesses of our social upbringings to address how we are shaped to want such a thing (*cough* HGTV *cough*) for the sake of time, which I am admittedly currently short on amidst all the property fixes, the packing, the moving and student loan tackling. Rather, what I am going to say is this: Take renovations nice and slow.

First off, Congratulations! You have a new home! Have you even  taken the time to celebrate that? We are trained to seek more, more, more, that few of us take the time to be grateful for what we have. I know I am much the same. It isn’t long after I’ve accomplished something that the following words are out of my mouth: “Okay, what next?” How about stopping, taking a breath, and seeking the NOW? As cliche as it sounds, take time to smell the roses.

Now, if you’re like most people, you likely had to take out a mortgage for your newfound space. Which also means you likely spent a good chunk of change for the down payment. Dare I say that for a number of people, the down payment makes up a majority of your life savings, especially if you are young and just out of college like me. I can attest. We took 100% of our emergency fund, and spent it ALL to make a 5% down payment on a $499,900 home in Orange County, CA. While you judge us however way you wish in the way we spent that money, we are now starting from where we were two years ago, when I graduated with $575,000+ in student debt while owing my then boyfriend, now husband, an additional $20,000. Except we have paid down $100,000 towards that debt and we now have a home. I have faith that we will be just fine.

If you could get over the judgement, here is what I have to say. The focus is not to renovate the space into a dream home. It’s to build your life around something that makes you ultimately happy. Comforts of an emergency fund included, digging yourself further into financial debt is not. Rebuilding our emergency fund is where a majority of our focus will be for now. So what if the counters are cheaply made of wood, and have minor signs of water damage? So what if the sink does not properly fit into the counter-tops and caulk was used to seal it up? Never mind that the cabinets have multiple holes in them from the handlebars that were there previous to the current ones. Or that the bathroom stall has glue stuck to the walls. Yes I want a brand new couch to replace the hand-me-down that I received from my college roommate in dental school. But I’ve lived with it for five years, and looking back and seeing what I’ve done with my life says maybe it’s worth sitting on that couch a few years more.

I can tell you that most buyers, myself included, can find unlimited furniture upgrades, faulty appliances, and remodeling projects, all of which will quickly deplete the incomes of even the rich and famous. In the voice of Admiral Ackbar, “It’s a trap!” These temptations will prevent the most frugal among us from saving their hard-earned incomes. Some even rack up high interest credit card consumer debt! Feeling a squeeze in the budget is normal, but you have control over that constriction. I would recommend taking a very lean approach to your budget, and take renovations nice and slow. Personally, my goal is to go ham with the student loan debt while rebuilding that emergency fund (substitute your important financial goal here). I assure you that you will be able to transform your place into something beautiful, in time. Meanwhile, be glad that you have a comfortable place to sleep, a functioning stove, a roof over your head – all things that many people around the world can only dream about.

If you are at the point where you want to take on renovations, you may be asking, where to start? Surely, not with the cosmetics. We are fixing only those that require most attention. For example, the bathroom in our roommates space only emits hot showers. And while hot showers are nice, we do need to add cold water for fine tuning. Additionally, the fridge that’s included with the space has no water filter. So we’ve installed a water filter under the sink, to avoid plastic bottles. Lastly, we spent our entire weekend taking off the shelving and wooden floorboards that the previous owner left behind. With that comes wall spaces that needed patching and re-painting. There was a closet door on the first floor which they’ve cut a hole into, so we bought a piece of wood and cut it to create a new door. I then painted it to match the rest of the house. A majority of the work we did on our own, with the help of a cousin and uncle. Someone quoted us $500 to remove the floorboards, so we did it for free instead. Alas, here is the “nice” part to the “nice and slow”. Doing the work ourselves saved us a lot of money, taught us a few things about property maintenance, and strengthened us as a team.

IMG_0952

IMG_0970

IMG_0953

IMG_0971

Meanwhile … we have started the re-financing process!!

Property Ownership: 5 Things to Avoid During Mortgage Application (Travel Hacking Included!)

We are extremely open about how we are able to travel on a tight budget. Our dream to explore Earth is not to be deterred by things such as massive student loans. I have already outlined how we travel hack our way to achieving our adventurous dreams. As much as we love travel hacking, we needed to put a complete stop on our strategies, at least for the time being. While we have proven to ourselves that travel hacking does not negatively affect our credit scores in the long run (how to understand your credit score, here), we also are very aware that it will affect our mortgage application short-term! Travel hacking violates a lot on the “Don’t list” of Mortgage lenders, so in order to understand why we should put travel hacking to a halt, let’s review what NOT to do when applying for a mortgage loan.

Related Posts:

1. Don’t allow tardy payments.

Missing a payment (or worse, adding judgements to a credit report) can surely tank any chances you have of getting a mortgage loan approved. It may seem as if a small missed payment won’t matter much, but your score can lower by more than 100 points if a 30-day late payment occurs on any type of credit account! After spending all this time being reliable and building up good credit, the last thing you want to do is give the lenders any indication that you are a risky borrower.

Be very wary of what you owe. Even missed payments for medical bills or court judgements can weasel their way, uninvited, and interrupt, delay, or all together annihilate the entire mortgage lending process. Even utility bills, parking tickets and library fines can cause damage. I would simply be hyper-aware about all payments that need to be made.

2. Don’t have revolving credit.

As I mentioned in my post, Understanding and Improving Credit Scores, the second most important factor in determining your credit score is how much you owe. Therefore, it is important to avoid revolving credit as much as possible and to pay off all credit cards in full. I mean, you should be doing that anyway, but now isn’t the time to slip. I know that during the entire mortgage process, you are likely thinking of so many other things, however, you want to make sure your credit report is at the forefront of your mind. You can lose as much as 45 points on your overall score just by maxing out one low-limit credit card!

Sometimes, travel hackers have that push to hit minimum spend within a certain time period, but they do so unwisely by spending more on their credit card than they can pay back by the end of the month, thus creating revolving credit. Live below your means, an advice that should be heeded at all times, independent of a mortgage application.

3. Don’t open any new credit cards! (Travel hackers, I am talking to you!)

Here is where travel hackers need to beware. You want to be approved for the mortgage but you also want to snag a credit card offer that’s pretty much handing you 80,000 points FREE. Your fingers are itching to pull the trigger and sending in that online application with just one click more. Don’t do it!

Unless, off course, your okay with risking mortgage approval. But if you are applying for a mortgage in the first place, I am assuming it’s because you don’t have the money to buy your house in cash. AKA, there is no alternative. Other sign-up bonuses will be there in the near future. The mortgage lender may not.

Here’s the thing: Mike and I have not seen our credit scores go down since we started travel hacking in November 2017. Within 6 months, we had opened 5 credit cards between us, and our credit scores have actually increased. They say that your credit score may go down 5 points with each credit card inquiry. If you have a really good credit score (800+), then I would consider your argument that one additional card will not reduce your score to a low enough point that a lender would deny you a mortgage loan. However, I like think we are better off safe than sorry. A recent inquiry will indicate to the lender that you may be a high risk candidate for a loan, let alone multiple recent inquiries. And if I am being honest, every time you do a credit pull, it will give you the top reasons why your score is the way it is. Me and Mike’s top reasons? “Recent Credit Card Inquiries”. Then again, our scores were around the 800’s. You may take that with a grain of salt, a dash of pepper, or however way you want to, but we chose not to open cards during this 45 day period.

The day after you close on the house, feel free to apply for whatever card you want. Just make sure not to max it out on home improvement stuff! (More on that, later.)

4. Don’t close unused accounts. (This too, applies to travel hacking.)

Many people believe in the fallacy that closing accounts will improve their credit score. Some believe in an even worse falsehood, and that is, closing credit accounts will wipe off bad credit history from their credit report. Sadly, no and nope.

The truth is that closing accounts can lower your credit score. Why? Because your credit history makes up a large part of your score. If you close an account that’s been open for ten years, that maybe you haven’t kept active in a long time, that will cut your credit history. Additionally, they will always consider the credit utilization percentage, which is the amount of credit being used versus the amount available. When it comes to closing cards, apply the same practice as with opening cards: wait until after escrow closes!

As far as travel hacking is concerned, there comes a time when credit cards need to be closed to avoid the annual fee. Mike and I were lucky in that we were not even close to any of our one year anniversaries for our credit cards. If you are planning to apply for a mortgage, it would be absolutely wise to plan ahead.

5. Don’t use this time to dispute anything in your credit report.

Which isn’t to say, don’t try to fix any inaccuracies with your score. Right away, if you see an accuracy, the best action to take is to notify your potential lender of the mistake. Current rules dictate that a single dispute under investigation by the credit bureau is enough reason to delay or nix the loan, in order to avoid consumers trying to improve their loan last minute by disputing negative (and possibly, accurate) information.

 

Property Ownership: Understanding and Improving Credit Scores

It would be nice to buy a home entirely with cash. The transaction would be simple, and there’s only one dotted line to sign. Unfortunately, for many in California, this just isn’t feasible … at least, not any time soon. We debated waiting to buy a home until we can pay for it in cash (mostly because of the fact that I get sweaty palms every time I think about loans) but the trade-off was too great. Waiting to buy a home for cash would have taken us more than fifteen years, since we had to focus on paying down $500,000 student loans as well, which is equivalent in price to our most recent home purchase. That would be fifteen years of paying for monthly rent, which could be equivalent to fifteen years of paying down the mortgage. I ended up wiping the sweaty palms on my jeans, taking a deep breath, and choosing the latter. Meaning, I had to take on a new loan, at the exact same price as my student debt. *Deep breathIf it wasn’t for my husband, I am not sure I could cope with the thought. Reassuring hugs and “we-got-this” fist bumps go a long way.

While I can ignore the nervous sweat and the anxious breathing, there is one thing a buyer applying for a mortgage cannot ignore: their credit score. Credit scores can be supplied by different companies, the most commonly used being FICO, which stands for Fair Isaac Corporation. Each score is calculated by an elusive mathematical equation that evaluates many types of information with the patterns in hundreds of thousands of past credit reports. Simply put, they are trying to evaluate the risk that comes with loaning you money.

Related Posts:

Things to note: 

There are several categories that the FICO score considers, including your payment history, the amount you currently owe, the length of your credit history, any new credits you acquired, the types of credit in use, and the number of credit queries. Here are a few things to note, and then we will go in dept into each category.

  • A FICO score requires that at least one account has been open for six months of more, and at least one account has been updated in the last six months.
  • Although a score can quickly be lowered, it takes time to improve your score. If you are planning to buy a home, and your score is lower than 750, I would recommend starting to improve your credit score NOW. There is no quick fix to improving credit. In fact, quick-fix attempts may backfire. The best thing you can do is to manage your credit responsibly over a long period of time.
  • A score considers all categories mentioned above, not just one.
  • Everyone’s score is calculated a little differently. One category may have more emphasis when determining my score whereas another category may weigh more heavily in calculating someone else’s. It’s impossible to say how important each category is, because it differs from person to person, depending on the overall picture. Therefore, it is important to work on each of the categories. With that being said, the general rule for a majority of people is that the categories are listed in the order of importance, with the payment history usually being the most important and the number of new queries being least important.

With that, let’s get right into it!

Payment History

A good payment history shows the lenders that you will be reliable in paying back the loan. Your score will take into account:

  • Payment history on many types of accounts, including credit cards, installment loans, and finance-company accounts.
  • Public record and collection items, including bankruptcies, suits, wage attachments, liens, and judgements. Bankruptcies stay on your credit report for 7-10 years. A foreclosure, short sale, or deed in lieu of a foreclosure lower your score by about the same amount. These are considered serious delinquencies, so don’t expect to get a new mortgage loan with favorable terms for 5-7 years.
  • Details on late payments: Your score considers how late payments were, how much was owed, how recently they occurred and how many there are. For example, a 60 day late payment is not as damaging as a 90 day late payment. However, a 60 day late payment made one month ago affects your score more than a 90 day late payment made five years ago.
  • How many accounts show no late payments, which will help increase your credit score.

How to improve your score:

  • Pay your bills on time.
  • If you’ve missed payment, get current and stay current.
  • If you are having a difficult time making ends meet, get help. May I suggest a financial planner?

The Amount You Owe

Using credit accounts does not mean that you’ll be a bad borrower. However, using many credit accounts and owing a great deal in each one indicates to the lender that a person may be overextended and is more likely to make some payments late or not at all. Your score will take into account:

  •  The amount owed on all accounts and on different types of accounts.  The total balance on your last statement is generally the amount that is shown on the report. The score will also consider what types of accounts are being used.
  • How many accounts have balances. A large number can indicate overextension.
  • How much of the total credit line is revolving credit, meaning carrying a debt balance month to month. Those who are closer to maxing out on many credit cards may hold greater risk.
  • How much of the installment loan accounts is still owed compared with the original amount. Car payments are a great example. Even if you’ve been paying the monthly dues on a $10k car loan, if the majority has been going to interest, then you may still owe 80% of the car loan when you apply for a mortgage. Paying down installment loans at a quicker rate obviously looks good.

How to improve your score:

  • Keep balances low on all credit cards.
  • Pay off debt as close to 100% as you can.
  • Don’t close unused credit cards as a short-term strategy to raise your score. It won’t work, and it may even lower your score! Long established accounts show that you have a long history, which is good in the eyes of a lender.
  • Don’t open new credit card accounts that you don’t need. I am talking to you travel hackers out there. Put it on pause.

The Length of Credit History

In general, a longer credit history looks good to lenders. I remember when Mike was trying to apply for a car loan. He had no credit history, and had difficulty getting it. It blows my mind that being financially responsible and not having credit history is considered a bad thing by lenders. What a backwards world we live in. Unfortunately, when it comes to borrowing money, a credit history is considered a good thing. Your score will take a look at:

  • How long credit accounts have been established  – the longer “the better”. Also, the more diverse types of credits you’ve been managing, the more responsible you seem.
  • How long it’s been since you used certain revolving credit. For example, an inactive credit-card is given less weight in your credit score than active ones.

How to improve your score:

  • Don’t open a lot of new credit cards. Remember that new accounts will lower your credit score, even if it is temporarily.

New Credit You’ve Acquired

Any credit less than a year old is considered “new”. The score will consider:

  • How many accounts you have. It will especially look at how many of those accounts are new.
  • How long it has been since the most recent account was opened. 
  • How many requests have been submitted for credits. Typically, inquiries remain on your credit report for two years, although FICO only considers inquiries from the last year.
  • The length of time since lenders made credit report inquiries. FICO will ignore inquiries that are more than a year old.
  • Whether your recent credit history is good following past payment problems. Off course, your score will be improved after getting current and staying current.

How to improve your score:

  • When you search for multiple loans, do them all within a certain time period. 

Types of Credit in Use

Usually, this category does not bear much weight in the score, however, it can if there is not much other information on which to base a score. This score looks at:

  • The different types of credit accounts you have. They look to see if you have a mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. Off course, this does not mean you should go out and get one of each!

How to improve your score.

  • You can open new credit cards but ONLY AS NEEDED. You don’t need one of every type. Plus you have to remember to manage them responsibly. Meaning, pay each credit card in full at the end of the month. Note that closing credit accounts does not erase them from your report.

Number of Credit Inquiries

Credit inquiries are defined as the requests that a lender makes for your credit score or report each time you try to apply for a new credit line. FICO takes this number into account. Here’s what you need to know:

  • Inquiries do not have a large effect on your score. Typically, this lowers the score by less than five points. That being said, there is a larger impact if you have a short credit history or if you have few accounts. Also, people with six inquiries or more on their credit reports are 8 times more likely to declare bankruptcy, something worth considering.
  • Many inquiries are not counted at all. The following are not counted, although they may appear on your credit report: orders made by you from a credit reporting agency, lender requests for your score in order to make you a pre-approved credit offer, and requests from employers.
  • The score looks for rate shopping. This is why I mentioned before that shopping around for a mortgage or an autoloan should be done at the same time. Multiple potential lenders may pull your credit report, even though you are only looking for one loan. The score counts multiple inquiries in a 45-day period as one single inquiry. Also, the score ignores all inquiries made in the 30 days prior to the scoring.

So there you have it! Trying to understand your credit score can be overwhelming. Score determination is muddled by the fact that each individual’s scores bear different weights for different categories. The most important thing to remember is that you want to prove that you have little risk for defaulting on a loan. So pay back debt, stay current, be responsible, and do this over the course of a long time period. And the best day to start is today.

Good luck!

Property Ownership: How much is it worth?

It is easy to get a feel for average market prices when you have been stalking the market for a year and a half. I am speaking out of experience. They say the best way to learn property values is to eyeball as many houses as possible and then monitor them until they sell. While I haven’t seen every single property on the market for the past year and a half, I HAVE monitored every single loft in Orange County and Long Beach. This focus on particular property styles in a certain location allowed me to be very educated about the general pricing of all lofts in our area. Lofts that were priced too high took longer to sell. Those that were priced fairly sold very quickly.

But even so, what houses list for is not always what they sell for. Unless you have access to the MLS or some other listing that also shows what houses sell for, you are guesstimating how much homes are selling based on the asking price. The actual selling price is not updated or revealed on search engines such as Zillow. Still, you need to know what a house is worth. Why? Once you understand how much a house is worth, you can finally separate your house buying decision from your emotions and buy based off of objective reasoning. Additionally, when it comes time to price negotiations when you are trying to submit an offer, you will have the upper-hand with FACTS supporting your suggested price. It’s better than struggling to make sellers see your side of the equation using emotion as evidence.

Before we go into how to determine if the listing price is fair, a few terms must first be defined. These three words are often used interchangeably but refer to very different things.

  • Value – Value is your opinion of what the house is worth. Value is entirely subjective, and it may change. Value is affected by internal factors, such as your current personal situation. Imagine a young couple who value living in an apartment in the center of a busy city, one which has an amazing walking score due to a number of neighboring restaurants and bars. But ten years from now, they may value a quiet street, a bigger home with a yard for their dog, and with a good school system for their kids. All of a sudden, their old apartment seems to hold little value. Conversely, value is affected by external factors outside of your control. If the city builds a garbage dump right next to your home, good luck trying to sell it.
  • Cost – Cost deals with yesterday. Cost was what someone paid for the property, and has nothing to do with today.
  • Price – Price is the correct term for what something is worth today. Seller’s have asking prices, buyers have offering prices, and together, they establish a purchase price, which is tomorrow’s cost.

Barring natural disasters, or states of duress, every home will sell at the right price, which is defined as the fair market value – a price that the buyer is willing to pay, and the seller is willing to accept for the home. Values are opinions, but fair market values are facts. It becomes a fact when the buyer and the seller agree on a mutually acceptable price. Therefore, it takes both the buyer and the seller to make a fair market value.

Now that those terms are defined, how do we go about finding fair market value? Median home prices are not the same as fair market values. They are simply the midpoint of all the prices of homes within the confines of a certain area. One must understand that there is a huge range of prices, and the median is just the middle. It’s too vague a number. There is a better way…

The best way to know whether a listing’s price is fair is to pull up a CMA report – which is a comparable market analysis, or a COMP for short. A real-estate agent can and should prepare a CMA for you before you send in your offer. When we were considering buying an over-priced turkey, we knew deep down that it was over-priced. But initially, it was difficult to separate our emotional ties towards a “dream home”, even though our heads knew better. What helped solidify our resolve was the CMA report that our real estate agent insisted we look at. Suddenly, we were able to turn down the seller, because over-priced homes that rob you of your hard-earned money are not dream homes at all.

There are two sections in a CMA. The Recent Sales section of CMAs should compare your home to others that are located in the same neighborhood, are approximately the same age, size, and condition, and have sold within the past six months. The Currently for Sale section of CMAs compares the home to others also on the market. This should include an analysis that checks for price trends. Do remember that sale prices are given far more weight than asking prices when determining fair market value. Sellers can ask for whatever fantasy price they want, whereas sale prices are facts and indicate fair market value. The best proof of what a house is worth is its sale price. Take the guess work out of the process by analyzing the sale of comparable homes. Be sure to factor in sales information, such as price reductions or large credits given to the buyer for corrective work.

Off course, CMAs also have their shortcomings. It is important not to compare two houses blindly, without knowing all the details of the subject properties. Here are a few reasons why the fair market values of seemingly identical homes (with the same floor plan, age, style, etc.) may differ.

  • Wear and tear: No two homes are identical after they’ve been lived in. Make sure you know the condition of both homes you are comparing.
  • Site differences within a neighborhood: A corner spot located by the park is a better location than a home facing a busy street, even if they are of the same community.
  • Distressed properties on sale: Identifying a foreclosure is easy, but a short sale, not so much. A short sale is not a good comp because it is considered as being sold under duress.
  • Floor plans matter: Two homes may have the exact same age, location, size, and condition, but one may have an open floorplan and another may be completely choppy. Therefore, the latter may have a lower fair market value.

If CMAs are not convincing enough, or you are of suspicion, then getting a second opinion is an alternative. You can pay several hundred dollars to get an appraisal of a property. The appraiser gives a non-biased opinion, because they aren’t trying to sell you anything. Personally, I would not recommend wasting money on a pre-contract appraisal. Firstly, a good agent’s CMA is usually as creditable as an appraisal. Secondly, it is not guaranteed that a seller will accept your offer. In which case, you would have spent hundreds of dollars for nothing, not even a chance at owning your ideal home! And that’s just not worth it.

So if property ownership is in the near future for you, congratulations! And hopefully, this helped.