Personal Finance series – Why it is almost NEVER a good idea to have an emergency fund

The summer is super nice and we have been out and about at every opportunity that is why it took us to long to write my next blog. Recently we have been having discussions with some friends about the need of an emergency fund. If any of you cared about your personal finance you must have noticed all personal bankers / financial planner / media /  paid ad recommend at least 3-6 months of your net income in your savings or chequing account. In the past decade we read a lot of personal finance articles, and we have yet to see a single article not recommending this, but we are about to write something that you likely have never seen.

We are here to objectively explain why it is almost never a good idea to put aside 3-6 months of net income in savings or chequing account. But first we need to make an important but realistic assumption: that unforeseeable unexpected bad things happen a lot less often than people think/fear. This is partly the way human brains are wired and partly from brainwashing from paid ads over long periods of time. I will not get into why financial institutions wants you to put money aside in savings account in perpetuity. Let’s be conservative and say the likelihood of bad things happening to you which requires you to use emergency fund is 10%. (lets be honest, if you feel chances of these events will happen to you is over 10%, then it is reasonable to say they are not “unforeseeable unexpected” events).

To make this as relevant as possible to you, we will present various scenarios.

Scenario #1:

Susan, 28 years old, $40K net income per year, recently got a condo (after reading this blog, good job!) and have a mortgage of $250K at 3% interest rate.

Good Susan: listened to her banker, put 3 months of net income, or $10K in her savings account at all times for emergencies.

Bad Susan: read our blog, did not put any money into savings account, but instead opened a personal line of credit with $10K limit at 5% interest (but absolutely no cost if zero usage), and use the $10K cash to pay down her mortgage.

A year later……

90% of the time:  Nothing bad happened to Susan. Bad Susan is now $300 better off than Good Susan because Bad Susan reduced her mortgage balance by $10K a year ago ($10K x 3% interest savings = $300).

10% of the time: Shit happened and Susan lost her job for 3 months. Good Susan used all her $10K in savings to survive. Bad Susan, since no emergency fund in savings account, had to use her personal line of credit and paid $500 in interest ($10K usage x 5%)

In this scenario, Good Susan is actually implicitly paying $300 per year to protect herself from the 10% chance that bad things will happen to her. But with a personal line of credit in place, she only needs to pay $500 in the event shit does happen. The expected value against bad thing is only $50 (or $500 x 10% likelihood). In the long run Bad Susan is always $250 better off  per year by not having an emergency fund in this case!

**Actually, some mortgages let you take out your previous bulk payment with no penalty or cost. Also other mortgages let you skip a few payments due to job loss, or even no reason at all!! etc. These options will completely eliminated any potential benefits of having an emergency fund for any mortgage holder. And you don’t even need a line of credit! To know more about embedded mortgage options, feel free to talk to us.**

Scenario #2:

Blow Joe, 20 years old, $20K net income per year, living pay cheque by pay cheque, live with parents, with combined running credit card balances of $5,000 at 20% interest.

Good Blow Joe: listened to his banker, put 3 months of net income, or $5K in his savings account at all times for emergencies, credit card balance remains at $5,000.

Bad Blow Joe: read our blog, did not put any money into savings account, but instead use the $5K cash to completely pay off his credit card balance.

A year later……

90% of the time:  Nothing bad happened to Blow Joe. Bad Blow Joe is now $1,000 better off than Good Blow Joe because Bad Blow Joe paid off his $5,000 credit card a year ago ($5,000 x 20% interest savings = $1,000).

10% of the time: Shit happened and Blow Joe lost his job for 3 months. Good Blow Joe used all her $5,000 in savings to survive. Bad Blow Joe, since no emergency fund in savings account, had to cash advance on his same credit card and paid $1,000 in interest ($5,000 usage x 20%).

In this scenario, Good Blow Joe is actually implicitly paying $1,000 per year to protect himself from the 10% chance that bad things will happen to him. However she only needs to pay $1,000 interest in the event shit does happen. The expected value against bad thing is only $100 (or $1,000 x 10% likelihood). In the long run Bad Blow Joe is always $900 better off by not having an emergency fund in this case!

Summary:

Emergency funds is unnecessary if you have credit available to draw on when you did it. Best is to open a personal line of credit. Also those financial “guru” out there always says you are more likely to spend the money when you see it sitting in your account every time you check your online banking app. We personally never have any emergency funds and we are doing just fine. We have multiple unused personal line of credits and skip-a-mortgage payment options ready to save our butts at all times. We’ll just dip into those if we ever need it. Best of all, none of these products costs us a penny to setup!

Everyone’s situation is different. If you want to see how you structure your personal finance to eliminate the need of emergency funds, feel free to contact us. We love to chat and save people’s money.

Until next item!

 

 

Mortgage Trend: Is variable rates going up very soon? should I lock-in fixed rate now before they increase? OMG OMG!

today rate

We noticed a lot of people are travelling to Japan this year as it feels like half of our Facebook posts are photos from Japan. We also took advantage of the low airfare and took Zoe in past Spring. Those who know us know we always look for best deals in everything, and travelling is no exception.

We are sure most of you travelling to Japan will be using some sort of mobile wifi device. The first time we went, we didn’t know any better, we reserved a device online and picked up at the airport at over $10CAN/day (below left). But this year we found a place at Vancouver is renting out wifi devices for as low as $4CAN/day!!! (below right) They have a store in downtown Vancouver you can go pick up before you trip and no need to wait in line at the Japan airport and waste your vacation time while they try to explain to you in Japanese. The device battery strength is amazing. This device lasts the whole day unless you are always surfing the net like us in which case it still last until 10pm. If you or your friend travelling to Japan be sure to check it out. Don’t worry they speak English 604-683-3510.

http://ketaiya.com/device-and-plan/going-to-japan/

wifi japanwifi saya

 

Back to our main topic.  Those who heard about the recent news that Bank of Canada is hinting they might increase interest rate soon than previous expected. We already hear people panicking asking us are rates going to go up now? should we convert from variable to fixed now? Or should we lock in fixed rate right now before it’s too late?

We are here to break it down for you with insight that you will probably  won’t see from any mainstream media.

The Scare Tactic:

Before you all go into panic mode that you mortgage rate will go up tomorrow, just think about all the media feeds that you have read/heard in the past, or any mortgage/home buying “experts” suggesting today’s interest rate will not last forever, it will eventually go up, etc. It’s important to take a look at what actually happened to the Bank of Canada rate in the past 18 months:

overnight rate

As we have been mentioning to homeowners last few years, we recognized the Bank of Canada intent is to try to cool down the real estate market. However according to Colin’s and Angel’s Think Tank, it suggested that Bank of Canada, realistically speaking, is not in a position to actually increase the Bank rate as the economy is still recovering, partly of the oil shock. So what they did is to use the scare tactic. They can only keep warning homeowners not to take on excessive debt as rates will eventually rise.  To most of the population it succeed. But to a person with CFA and Econ Major, sorry Mr Poloz we called your bluff. Just look at the chart above. Prime rate did not change for the past 18 months.

Direction of variable rate:

We generally agreed the economy is trending more and more in the right direction in the last few months, and that rate increase should, finally, be in the horizon. However what we want our clients to noted is that this will just push forward slightly the expected 1st rate increase, from mid 2018 to perhaps early 2018. We would be quite surprised if there is a rate increase before 2018. So variable rate holders can breath easier for now, there is still time to decide your next move. For those with variables ending in the next year, that is great news.

Throughout history, Bank of Canada overnight rate typically goes lock-step with mortgage prime rates. We need to noted the last decrease in mortgage prime rate did not decrease in lock-step with the overnight rate. For example the last drop of 0.25% in overnight rate resulted in only 0.15% drop in mortgage prime rate. So there is a good chance when the 1st overnight rate increase, which will be 0.25%, only result in 0.15% increase in mortgage prime rate. So your impact could be lessen by half.

Direction of fixed rate:

Before we start on this topic, we just want to clarify one thing, that fixed mortgage rate has no directly relationship with Bank of Canada overnight rate or prime rate. The fixed mortgage rate is determined solely by the yield in the Canadian bond market + a spread as per the individual Banks. Looking at the 2 graphs below you will see the yields for 2 & 5 years bond as of Jun 14.

2 year bond5 year bond

And the yield is determined by investors (local and global combined). If investors view Canada as a safe place to park their money and have solid economic prospect, this will drive down the yield thus resulted in a lower fixed mortgage rate. (Assuming the individual Banks will keep the margin the same). Fixed rates has been fluctuating within a close range in the past couple years, maybe within 0.25% boundaries. According to Colin’s and Angel’s Think Tank, in the next few months we expect fixed rates to continue to fluctuate within a very close range. We might see a slight increase in the next couple weeks but we do not think it will go any further, then that. As such, if you are in a variable rate now there is no rush to lock in fixed rate for now.

Feel free to each us if you have any questions about your current mortgage situation or if you are planning to get a new mortgage or close to a mortgage renewal. By not talking to us, we guarantee that you are leaving money on the table with the lender!

Cheers!

 

Disclaimer: The info and predictions above are only personal opinions of the writers. Actual results may varies. We are not responsible for any financial loss as a result.

What time is it? It’s property tax notice time!

Is this time of the year again. (For most of us anyways)

tax1.jpg

We just got our first property tax notice for 2017 today. Given the continue run up in home prices, when the average homeowner Joe open their envelopes this time around they will again say to themselves “no eye see, how much is my property tax going to be this year?”.

For this particular townhouse in Greater Vancouver that we owned, the 2017 assessment value was up 21% year-over-year, from $491,000 to $596,000. All the people who don’t follow our blogs will be telling on their friends and dim sum buddies “oh man, our property taxes will likely be 21% higher than last year, no money me so poor”.

tax2.jpg

But for experienced real estate investors like us, we knew despite the 21% increase in assessment value in 2017, we were quite confident that our property tax for this particular property will be more or less the same as in 2016. Not to our surprise, we opened our envelop and found out our property taxes was 3% LESS than last year. 

Now if you are wondering how is this possible? This is not what my friends / auntie / uncle / 24 hours newspaper / inexperience realtors have been telling you all these years. You need to read one of my previous blog:

Property Assessment vs Property Tax Amount – common misconceptions

For those lazy bumps, the short version is that, as most of you know, there is a disproportion of increase in prices of detach homes in Greater Vancouver between July 2015 to July 2016 (which is where the 2016 & 2017 assessment values came from) relative to townhouses and condos. And property taxes are based on your home price relative to your neighbours, not absolute value.  Therefore despite the small overall increase in city’s budget for 2017, townhouses and condos owners are paying a disproportionally less than detach home owners.

If you understand this concept, you will forever be a minority that do as you will never be able to convince someone that this is how property taxes are calculated. They have been brainwashed by the media for as long as they have lived.

Hope you learn something today. Until next time!

 

Greater Vancouver Real Estate Market Updates May 2017

First of all we apologize for not posting for a while now. Many of you have been messaging us when the next blog going to be posted. We have been really busy with life. Since it has been while let’s dive right in on what’s happening in the market as we speak.

For those that’s been hunting for a home lately, you must noticed the market has picked up dramatically again. What’s different this time around is the condo/townhouse segment is white hot right now. Basically what happened to detach houses last couple years has been happening now to condos/townhouses. Houses are picking up as well just not selling as fast.

We are sure most of you would like to know what Colin’s and Angel’s think tank predicts the market will go from here but first I’ll point out the major factors at play here:

  1. This is the biggest factor driving multiple bids/rapid increase in prices in condo/townhouse right now – the number of listing ( = supply) at 20 years low. Noticed “supply” here is NOT what the media and government have been saying, which is to build for housing to match demand. This “supply” here is on existing properties where homeowners are reluctant to put their homes for sale. Why is that you say? Put yourself into their shoes, why put the unit on sale today when you know you can sell at the higher price next week? People who are selling now mostly because they HAVE to sell today (ie they are upsizing to a house (committed) / moving out of town etc).

2.  The value of the CDN$. The CDN$ took a further beating this year. And Colin’s and  Angel’s think tank predicts there will be further downward pressure on the CDN$ due to relatively weaker economy than the US and it is unlikely Bank of Canada will match increases in overnight rate with the Feds in the next 12 months, thus widening the  interest rate differential between CDN & USD. Let’s be honest, there’s foreign money at play here, especially RMD and USD.

3.  The introduction of the 15% foreign tax in Ontario. For the past 8 months people are favoring Toronto because of this. Now both cities have it, they are back at the same level of playing field. And let’s be honest again, Vancouver > Toronto.

4. The lessor known factor, which will increase investor demand for properties in Vancouver, is the Rent Control policy change in Toronto effective just last month Apr 20, 2017. Before Apr 2017, unlike in BC, there’s no annual CAP a landlord could rise rents in buildings built after 1991. However there is a CAP now. And looking closely, the CAP is even tighter than the one in BC. This CAP is at inflation AND capped at max 2.5%. (FYI BC is 3.7% in 2017). All else equal this will result in some  investors moving investment properties from Toronto to Vancouver. For the nerds:  https://news.ontario.ca/mof/en/2017/04/ontarios-fair-housing-plan.html

5. On the other hand, the current ultra tight supply is unsustainable at current level as there are tons of pre sales completing in the next couple years which, all else equal, will result in less multiple bids situation.

So do we have a crystal ball on where’s the market is heading in the near-mid term? Yes we do. Are we going to share on our next blog? Maybe. Want to know is it a good time to buy/sell your condo/townhouse/house now? feel free to contact us any questions you might have.

It’s 1am we are going to bed now. K thanks bye.

P.S. We rushed though this and didn’t even prof read this article. Again this is our personal opinion only. Actual turnout might various.

Mortgage series: #1 thing to avoid when planning to get a mortgage

It’s raining everyday in Vancouver it’s getting depressing. Canucks just got mathematically eliminated from the playoff with like 10 games to go. We are trapped inside so we might as well write another blog. This time let’s switch it up and continue to talk about preparing yourself for applying for a mortgage BEFORE you engage any mortgage brokers or lenders.

If you have not done so, please ensure you read my previous blog about how important it is to know/check/review your credit situation BEFORE applying for a mortgage or even getting a pre approval. Here is the link:

https://wordpress.com/post/colinngblog.wordpress.com/233

A lot of you will say I pay all my credit cards and loans on time, I have no collections item, I know my credit score is almost perfect, what do I have to worry about why applying for mortgage?

Usually if we know you are a prudent individual, we won’t even bother asking you pay your loans on time etc because we know you already do.

The one thing we will ask you though is are you carrying a car loan or lease? As we notice car leasing or financing is getting ever popular. We hear people say “yo I want always drive new car man, switch it up every 3-4 years yo, it will start to break down after 3-4 years and that will cause you money, car depreciates why you want to own them outright,  once you drive out the lot you immediately lose 15% dude”

We typically get a surprised/wired look at us when we ask this question. Sometimes they will replied “yes, but I make payments on time, and the car loan amount is so small (relative to mortgage amount), they were offering 0% over X year, killer deal man, free money, only idiots will not take it, and it’ll get fully paid off in the next year or two, can’t lose, so why do you even ask?”

First of all, this is a misconception as a car dealer will not offer you 0% (= free loan) with no catch, but maybe that’s another blog for another day if there’s interest for this topic.

We try to avoid number crunching as much as possible because quite likely you are either reading this super tired in the morning on way to work and want to go straight to bed, or lying in bed at 2am so tired but doesn’t want to sleep. So we give 3 snap shots that explains everything:

To make our point relevant, we just went car internet shopping like a typical shopper would, we picked this popular SUV (I crossed out the model icon & number to remain anonymous) because they are doing a special offer 1.9% lease up to 4 years!

car lease 3

Below is a snap short of the lease payment amount for a 39 month lease at $997/month only.

car lease 2

Now this is where things get interesting real fast. Now check out this online mortgage payment calculators (again we crossed out the Bank’s name to remain neutral). We used typical current rate at 2.59%, 30 years amort, we plugged in a random mortgage amount of $250,000. Guessed what the monthly payment is for this $250,000 mortgage?

car lease 1

It is $997. hm…. seen this figured somewhere recently? Yes, this is exactly the same as the car lease payment above.

Conclusion: Because of this car lease payment of about $1,000 per month, the maximum mortgage eligible for this individual will be $250,000 less than whatever would have qualify based on his/her income level, whatever that is.

So if you would get qualified for a $300,000 mortgage amount before, once lender see this $1,000 lease pymt on your credit report, regardless if you pay on time, before due date, pre bulk pymt, have overall max credit score at 800, you will now only qualified for a $50,000 mortgage ($300k minus $250k).

So if this is your currently situation, assume you have $25,000 downpay, now you limited yourself to properties under $75,000.

But fear not, as I always say there will be something that fits your anyone’s budget, even in hot market like Greater Vancouver, even in center of Richmond!!!! “HURRY, THIS WON’T LAST” they say.

car lease 4

At the current market, Colin’s and Angel’s general rule of thumb is every $400 per month of car payment will decrease your mortgage eligible amount by $100,000.

That’s all folks. If you have any questions on real estates or mortgages, feel free to contract us via email, facebook, snail mail, flying pigeon, whatever works for you.

 

Disclaimer: This blog is for educational purpose only. We are not responsible for any monetary or non monetary loss as a result of, but not limit to, any errors or omissions on  this blog. This is our personal opinions only. And we have no relationship with the listing agent/posting in the last photo.

 

 

Pre-sale condo investor single most important must-ask question!!!

So it’s been a while since my last post, I think at least 6 weeks. Lots of you have been asking us when are we writing my next blog. For those that followed us on Facebook, you knew we went to Asia for 3 weeks with our baby Zoe. It was tiring but krazy fun!

IMG_9814

Before we go into this week topic of the must-ask question on buying pre-sale condo, just to reflect on my previous post regarding the effect we predicted when the government announced the new home owner helper program. And this was what we wrote in our blog in Jan 2017:

note 1a

And this was what the Globe and Mail article stated on Mar 2, 2017, after the roll out of the helper program, basically confirming what I said two months ago.

note 2a

Last weekend we were at open houses for various type of housing in Burnaby area just to confirm our predictions in January. An old single house was asking for $1.6M and realtor told me just a month ago they were asking $2.0M and they advise client to “drop the price (by $400k!!!!!) to induce demand”. And we also drop by a small 3 bed townhouse with asking price at around $620K. It was first open house and when we asked the realtor what’s the situation, he told us there were already 3 offers the owner rec’d pre-open house and already accepted with subject removal above asking price. This first open house basically is seeking back up offers. I noticed even penthouse condos, which cater to a very niche market and were a tough sale even during the krazy last few years , are now finding buyers and deals are closing.

I’ll provide more market predictions in one of my next blog, but for now let’s talk about what the most important thing pre-sale condo buyers need to know before buying that often get forgotten.

For those of you that bought pre-sale condos in the past few years, you would most likely already asked the following questions about the condos/projects:

Those are pretty standard questions you or your realtor will lead you to ask, and are typically included in the information sheet. These are all important info to know when deciding to purchase or not.

However one of the question which we believe is very important, especially as a investor that plans to rent out the units, and it often never mentioned by the sales representatives or bought up by some realtors, is …

“are there any purpose built rental units/buildings in this overall project?”

“if yes, are they market rentals or affordable housing units”

It happened to us a few times, let me give you 4 case studies MBA style:

***I removed any names in the pictures to keep the buildings & locations anonymous.***

Case #1:

rental 1

This was quite a while ago when we were pre sale investor noob so we never asked this question. We were at the sales center couple times, we asked all the standard questions listed above, the sales were very knowledgeable about everything. Then by chance I was reading local newspaper about the agreement between the developer and the city for this project, and noticed afterwards the low rise in between the two towers are purpose built rental units.

Case #2:

rental 2

By this time we were intermediate level pre sale condo investors. We noticed in the price list is level 25-30 level up (don’t remember exact floor) and we asked why is that? Oh the bottom half is rental units to be retained by the developer. We were turned off immediately when we knew we have to share the same structure with min 50% renters? We know most renters are nice and care the building, but based on Colin & Angel Think Tank, there is a positive correlation between the number of rental units and the issues a build will have over time. And Think Tank also suggested insurance rate is higher the more rentals a building as. Maybe dice for you, but no dice for us.

Case #3:

rental 4

By this time we are above average pre sale condo investors. Noob will not pick this up. These towers are almost all sold out now, and we are quite confident, to this day, that min 90% of buyers (and that’s like hundreds of them) still have no clue that this project includes a decent size purpose built rental portion. As always we were examining the project at the sales center, and the low rise on the right was not included in the 3D model. The only reason we noticed was on a flat sheet and project plan we saw a square labelled “future phase” that’s in additional to these three towers. We immediately asked a sales what’s this 4th square in the diagram? He said “oh it is expected to be strictly a 6 story rental building to be retained by the developer“. Oh thanks for letting us know, we are sure this is not important for us to know when making our buying decisions. And we were at this packed sales center for a good couple hours and we swear to God no purchasers noticed this building. I feel sorry for the buyers level 4-6 facing that direction. But I guess that’s what you get when you do not reading our blog.

Case #4:

rental 3

By now we are expert level pre sale condo investors. So this time we walked in and the sales introduces the project and the first phase will be these 4 towers, we will be selling tower 1 first. To cut the bulls, we asked is there any purpose build rental? Sales replied softly, “oh tower 4 will be purpose build rental.” As soon as we hear this we immediately ran out of the presentation center, hopped into our SUV and drove home and play MJ for the rest of day, or maybe watched Canucks lose, don’t remember.

**************************************

The fact that there will be a rental building very near by is not necessary a bad thing. I am listing out the pros and cons in point form so you can make your own decisions (or email us to get our opinion on a specific project):

Pros:

  • developers are very smart and always do their due diligent, the fact that they plan to hold and run rental units there means there must be good demand in that area, they basically did the research for you, in street term, “they have skin in the game”, and as investors we like that.

Cons:

  • huge increase in rental supply, especially at the beginning when lots of units available at the same time, we all know what supply will do to pricing I will not go any further here
  • your rental pricing power reduced substantially as the developer basically set the price and you may be able to go a bit higher or lower but that’s about it.

 

Both of us hope you all got something out of this blog today, except those that already purchased on of the units above. In that case, we sincerely hope you knew all the rentals building situation BEFORE your purchase.

To clarify,  in no way we are suggesting the developers are hiding these info from buyers. At the end of the day, the information is out there somewhere, maybe local news paper, the city database, disclosure statements, in the presentation center. If you choose to work with us, we will make sure you are aware of this and make sure there is no surprise for you. If your realtor already informed you this topic the last time you bought a pre sale, great! If not, hm….  good luck!

Please follow us if you like our blogs.

Until next time!

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Disclaimers: We are in no way suggesting the above projects are good or bad investments. This is simply an education blog. They are our personal opinions only and there are possibility that the project scope might have changed since.

 

 

 

 

 

Personal Finance Series 2 of X – how to “clean” your credit report in preparation for mortgage financing

In my blog a few weeks ago “Personal Finance Series 1 of X – Importance of checking your own credit and how to do it yourself”, I talked about how to pull your credit bureau for free and the reason why I recommend everyone to do it once a year, especially if you are planning to apply for mortgage in the foreseeable future. With new rules coming out from the government so frequently now there has never been a more important time to prepare your credit in best shape possible in order for the lender if give you the maximum amount of funds and at the lowest rate available.

Here is the link as a refresher:

https://colinngblog.wordpress.com/2017/01/07/personal-finance-series-1-of-x-importance-of-checking-your-own-credit-and-how-to-do-it-yourself/

If you listened to my advise and pull the report, you should have received your report by now. Since I suspect most of you have never seen a credit report,  I’ll show you here how a credit card will show on the report as an example.

credit-1a

This is more or less what your lender will see for each of your existing credit cards, line of credits, car loans, mortgages etc. In this case, this person had a CIBC credit card opened in 2010 with limit of $500. This card has since been closed in 2014 at consumer’s request. There are typically two types of closures: “by consumer” or “by credit grantor”. Your lender will view any facilities listed as “closed by credit grantor” with a red flag as usually there’s some issues with the account that leads of lender to initiate the closure. On the other hand, if you called in and close the credit facilities, like in this case, will be shown as “closed by consumer’s request”, and typically lender will not question that and deemed you no longer need it and wanted to be cancelled. Here you can see how many past due payments, in this case payments for the 55 months are all up to date. You will also noticed this card has “R1” status.

There are mostly 3 different types:

R – revolving account (ie credit card )

C – credit account (ie line of credits)

M – mortgage

And numbered between 0-9

0 – too new to rate (for facilities recently opened)

1- best rating possible

9 – worse rating possible

So when lender ask you how many credit cards you have and if they are paid on time, just keep in mind that they likely already know the answer before they ask you so you better off just tell the truth.

I am now offering 3 tips that will help you improve your first impression (credit wise) to you lender:

  • review your report and call card companies to close any unused credit cards, especially those store credit cards that you have not been using for the past 10+ years that you weren’t even aware of. Remember, the less credit facilities you have, the faster the lender can process your application and the less complicated it is for them to review.
  • if there is any “collection” item that is nominal amount, just call the company and pay it off. I know some of you will say it is the principal that matters, not the amount that you care about. Or you want to teach the company a lesson by not paying and let them go through the trouble of trying to collect from you. My advise is just pay it off. If you want to continue to compliant, go ahead after you have it paid. By not paying and shown as “collection” status on your report, you are in a position I refer to “win the battle but lost the war”. You might win the $25 from your TV/cellphone provider, but you just got denied getting a $300,000 mortgage to secure your home ownership dream. Let that sink in for a moment.
  • if there is any “judgement” item on your report, be sure to solve it before having lender do a credit check on you. If you don’t, you better have a real good explanation to tell the lender what happened. “Judgement” and “collection” items are really eye sores that stick out in a very negative way. These could sometimes be show stopper items.

Below is direct statement from Equifax on how long they keep various items on your file like bankruptcy (6 -14 years), judgements (6 years), and collection accounts (6 years).

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In my next Personal Finance Series # 3, I’ll talk about what you need to do to position yourself you to be eligible for largest mortgage amount possible. This needs to be done at least a couple months before having lender pull your credit and is incredibly important  in such a tight lender environment. I see so many clients over the years going to lender and was shocked at how little they are qualified for even though they have good stable income.

Hope you find this information useful. Any questions, don’t hesitate to contact me. Until next time!

Gong Hay Fat Choy, Lay See Dow Loy!!

Disclaimer: We are not responsible for any errors or omissions in this article or blog. These are our personal opinions only.