Economic Empowerment Strategies for Women

Module Four: Homes, Loans and Automobiles

This chapter reviews advanced finance management principles and topics.

Please note that the information in this curriculum is intended to be general advice for women involved in an abusive relationship.

Please note that the information provided here is intended to be general advice for women involved in an abusive relationship. However, not everyone’s situation is the same. So, if you need specific advice regarding your particular situation, you should contact a financial counsellor, credit adviser or an advocate. Please check the Resource section of this booklet for a list of resources in BC.

 

In this Chapter you will learn about:

• The various types of financial paperwork that exist
• The difference between various loan options
• Applying for a loan and recall how to prepare for the application process
• The various home options to consider when seeking financial living independence.
• The path to achieve home ownership

 

Key topics covered in this module include:

• Financial Paperwork
• Loan Options
• Loan Application Process
• Home Options
• Home Ownership

 

Financial Paperwork

Fully understanding your financial situation is the next step in building a financial foundation. In order to prepare for budgeting (which will be addressed in cha), you will first need to gather the financial documents that indicate what you owe, how much you have and the living expenses you require.

Be aware that gathering these documents may put your safety at risk if your partner discovers you have gone through the files. Talk to an advocate to create a safety plan and be mindful of keeping safe and consider storing copies of financial documents outside the house such as at a trusted friend’s house or another safe location. The following tips may also be helpful:

• Be careful as you gather documents and store the information. Abusive people may set traps in files to detect if someone has accessed them.

• If you cannot get access to your birth certificate or Social Insurance Number (SIN), you can use your driver’s license or BC identification card to request a copy of your birth certificate or Social Insurance card at a later date by contacting the appropriate government organizations. Be aware that there may be a charge to obtain copies of these documents.

• You need only the most recent copy of your bank, investment or credit card statements.

• If you cannot find paper copies of documents, request an electronic copy be sent to a private email account you set up with a new password.

• Don’t worry if you can’t access your utility or other monthly expenses. If you have a checking account, your most recent bank statement will provide information about monthly expenses (or if you pay via money orders, make copies of the statements).

The following list of documents may help you rebuild your financial life. This list is the ideal, but don’t be discouraged if you are unable to obtain all of these documents. At a minimum, make note of account numbers, the phone number for your bank or credit union, credit card companies or other lenders.

With the account numbers and contact information you will be able to reconstruct many of these documents. Work with your advocate to make a plan around safely gathering documents.

Financial Records:

• Bank statements and cancelled checks
• Bank certificates of deposit
• Brokerage account statements
• Credit card accounts, loan documents and statements
• Mortgage applications and repayment records

Legal Documents:

• Birth certificates
• Marriage certificate
• Immigration documents, landing paper, Permanent Resident Card
• You and Your children’s Passports
• Social Insurance card
• Wills and trust documents
• Pre- and post-marital agreements (divorce settlements)
• Records of any pending legal actions
• Records of inheritance
• Driver’s license or state identification card
• Adoption papers for any adopted children
• Paperwork pertaining to immigration and laws for you, your children
• and partner
• Protection orders and temporary protection orders (including police reports)

Property Documents:

• Title documents, mortgage agreements and payment records
• Original purchase documents, such as appraisal documents
• List of collectibles, jewellery, artwork, other valuables (include photos)
• Vehicle registrations
• Insurance policies
• Pictures of the furnishings and personal items in your home
• Copies of any existing wills and deeds

Health Records:

• Medical and dental records
• Health, life and disability insurance policies
• Medical expense records
• Records of prescriptions for drugs and eyeglasses
• List of doctors (for you and your children or other dependents) and
• their telephone numbers
• Living will

Expense Documents:

• Household bills (utilities, rent/mortgage)
• Education records
• Childcare contact information
• Children’s after-school activities information
• Clothing receipts
• Laundry and cleaning expense records
• Household help records
• Transportation information (gas receipts, Translink monthly Pass receipt, etc.)

Although this is not an all encompassing list of every financial document that exists, it provides a thorough starting point for collecting the information and data you need to independently rebuild your financial future. Additionally, you may not be able to access every document on the list, but reviewing it may help you remember assets and liabilities you have.

 

Loan Options

As you begin to rebuild your financial foundation, you may want to look at obtaining a loan to meet your financial goals. Taking on debt isn’t always bad and can actually be very helpful in building a positive credit score. The key is to not to take on more debt that you can manage. Knowing about different kinds of loans will help you make better decisions. It is really important to avoid taking out any loan unless you have a solid plan for repayment.

Also, be aware that if you are attempting to keep your location or actions confidential, taking out ANY loan, including credit cards, may make you vulnerable and are traceable via your credit report.

There are essentially two types of loans: unsecured and secured.

Unsecured Loans

An unsecured loan is a loan obtained without collateral, a security pledge such as a house or car. This loan is also called a signature loan. There are three main types of unsecured loans: I.O.U. Loan, Credit Card Loan and Personal Loan.

Unsecured Loan: I.O.U. Loan

The simplest unsecured loan is a personal loan from a friend or family member, with an I.O.U. as signature of agreement to pay back the loan.

This type of loan may be a good option but before taking a loan from family or friends consider the following: what might happen if you are unable to repay the loan, how might this damage the relationship, and what if the family member or friend changes their mind and wants to be paid back earlier? If you decide that this is a good option, consider putting the agreement on paper, spelling out all of the terms of the loan, interest to be paid and when payments are due. Having the agreement clearly stated in writing can avoid problems in the future. Below is example of an I.O.U loan.

• Step 1 Include the date, month and year the agreement is made.
• Step 2 Include the full name of the person lending the money and their address.
• Step 3 Include the full name of the person receiving and borrowing the moneyand the person’s address.
• Step 4 Include the amount of the loan.
• Step 5 Include the number of months or years the loan is for.
• Step 6 Include the amount of each scheduled payment.
• Step 7 Include the interest charged on the loan, if applicable.
• Step 8 Both the borrower and lender need to sign the IOU loan agreement.

Unsecured Loan: Credit Card Loan

Another common type of unsecured loan is a purchase made on a credit card. Each time you make a credit card purchase, you sign a form which authorizes the payment and agree to pay the money borrowed. The term and amount of the loan are predetermined when you first applied for and receive the credit card.

With this type of loan, the money is not loaned on the basis of collateral, such as home or property ownership. The credit card company merely has the borrower’s agreement to pay any funds borrowed. However, if the loan is not paid in appropriate time, additional fees may be assessed, the account may be sent to collections, and legal proceedings can be taken against the borrower.

Below is an example of using a credit card to take advantage of a lucrative purchasing opportunity.

Tara has just moved into a new apartment and has little furniture. After some shopping around she is able to find a sofa for $750. The furniture store offers zero percent interest on all purchases over $500 for a period of six months. After the six month period, any remaining balance is subject to 25 percent interest.

Monthly Payment to Pay Off in Six Months:

$750 (total cost of sofa) / six months = $125 per month

Monthly Payment by Paying Minimum Due:

Minimum Monthly Payment = $50
Balance after Six Months = $450
Balance of $450 at 25 percent = $112 per month (until loan is paid in full)

In Tara’s scenario above, her $750 sofa has the potential of costing $1200 if she makes only minimum payments!

 

As mentioned before, the key to any loan (especially credit cards) is to only utilize it if you have the ability to repay.

With keeping that in mind we should say that, credit cards can be a good option for short-term needs and for establishing credit. However, discipline is the key to using credit cards.

Important:

Before putting something on a credit card, consider the interest rate, the monthly payment and how long it will take you to pay off the loan.

Unsecured Loan: Personal Loan

Some banks offer unsecured loans to borrowers. Banks will assess the “creditworthiness” of the borrower before handing over cash without collateral. Those who have lower credit scores tend to have less chance obtaining an unsecured loan, and if they can get one, they may be assessed high interest rates, since the lender is taking more of a risk.

Usually, an unsecured loan is for a small amount, perhaps for a one-time medical fee or short-term needs. When your credit is good, shopping around for the best interest rate for an unsecured loan is a good idea.

Frequently, the best rates for an unsecured loan are offered through credit unions. If you have an existing account with the credit union, obtaining an unsecured loan should not be a problem.

 

Secured Loans

Secured loans are those loans that are protected by an asset or collateral of some sort (such as a car or house). From a lender’s point of view, these types of loans are less of a risk because the lender can recover their loss from the asset used for the loan.

So, secured loans are often the best way to obtain large amounts of money. Also, since there is less risk for the lender, the interest rates tend to be lower.

BUT,

• If the loan is not repaid, the lender may take possession of the asset.
• Since the loan amount is generally higher, the application process may take longer.
• There are three main types of secured loans: Debt Consolidation Loan, Car Loan and Home Loan.

Secured Loan: Debt Consolidation Loan

One type of secured loans is a debt consolidation loan where a home or personal property is used as collateral. Instead of having many high interest credit card payments to make each month, money is loaned to pay the original lenders off, and the borrower then only has to repay the one loan.

This is not only more convenient, but since interest rates for secured loans are lower, it will also save a lot of money over time. A debt consolidation loan usually offers a lower monthly payment as well.

For example, before shopping for used cars or loans, it is a good idea to sit down and determine what kind of car payment you can afford. Drivers should remember that in addition to monthly payments, the car will also need to be insured, and the car will require gas and periodic repairs and maintenance.

All of these costs can add up, and it is important to account for them in a monthly budget to avoid surprises or a loan which is too big to carry comfortably.

As a general rule, loans with short terms are better (36 vs. 60 months), because borrowers pay less interest, and the lower the interest rate, the less costly the car financing.

Car Financing Through a Car Dealer

If considering financing a car through the dealer, make sure you understand all of the costs. Some car dealers may have working relationships with local lenders to make the financing process easier, but these relationships may involve payments to the dealers for routing loans to particular lenders. Be sure to ask the dealer to fully explain all of the costs involved to understand what you are paying for in the process. a lender of choice, and then select a dealer to identify the particular car to buy.

Car Financing With No Credit

The last type of a car loan we are going to discuss is the no credit car loan.

While there may be good reasons to consider a no credit car loan, there can also be some dangers. In some cases, a no credit car loan may seem like a good solution for those who have bad credit or no credit history.

Some of the disadvantages include:

• Typically only available on used cars.
• Many lenders that offer this type of loan do not report to the credit reporting agencies (which makes it difficult to rebuild your credit).
• The interest rate is typically higher due to the increased risk.
• If a payment is missed, the interest rate may increase and the lender can repossess the vehicle.

If you have bad credit, chances are good that you’ll find at least some lenders who are willing to finance your automobile purchase. However, it’s wise to be extra careful when shopping for car loans in this situation. Some lenders prey on borrowers who have bad credit, as they may be compelled to take just about any offer because they feel desperate.

Secured Loan: Mortgage Loan

The most popular secured loan is a mortgage (home) loan. The terms of the mortgage loan are usually different from a standard bank loan, both in terms of structure and in duration. In most mortgage financing arrangements, the property that is purchased with the financing is used as collateral for the debt. There are four main types of mortgage loans: fixed-rate, adjustable rate, balloon, and sub-prime. Each loan is explained in further detail below.

Fixed-Rate Loan

The two most common loan terms today are the 15-year and the 30-year mortgage. If a borrower selects a 15-year mortgage, she agrees to repay the amount borrowed and all interest within 180 monthly payments, or 15- years from the date of the loan. If a borrower selects a 30-year mortgage, she agrees to repay the amount borrowed and any and all interest within 360 monthly payments, or 30 years from the date of the loan. The loan also provides the same interest rate during the life of the loan. Selecting a loan term that is right for your specific needs is one of the most important decisions you can make when choosing a mortgage. So how do you choose between a 15- or 30-year mortgage? While there are many factors to consider, most borrowers make the choice based on the monthly payment that is most comfortable. The longer the repayment term of the loan, the less the monthly payment will be. The drawback to this is that over the life of the loan, the borrower will pay more in interest with a longer term than with a shorter term.

Adjustable Rate Mortgages (ARMs) Loan

An adjustable rate mortgage, also known as ARM or floating rate mortgage, is a type of mortgage with a flexible interest rate. This means the interest rate fluctuates depending on the index. There are basically five types of indexes used to calculate the interest rate on adjustable rate mortgage: Constant Maturity Treasury (CMT), the 11th District Cost of Funds Index (COFI), the 12-month Treasury Average Index (MTA), the National Average Contract Mortgage Rate, and the London Interbank Offered Rate (LIBOR).

An adjustable rate mortgage is not necessarily a bad arrangement, just a more risky one. In the case of the index falling, you may end up paying less than you would on a regular mortgage loan; however, when the index rises, you would end up paying more. An adjustable rate mortgage often comes with a cap or limitation on charges, which controls either the frequency or the lifetime change of the interest rate. For example, an adjustable rate mortgage can have a cap of a two percent maximum per year, or six percent total during the lifetime of the mortgage. This protects you while still ensuring the lender a fairly safe transaction.

Now that you know all about the different types of loans available (both unsecured and secured), below is some final information to further educate you about the loan financing industry. While most lenders are respectable, there are some lenders that are not (including mortgage lenders) and they may charge excessively high interest rates and unreasonable terms.

Predatory Lending

Predatory lending is the practice of using unfair, deceptive and abusive tactics in lending money. Unscrupulous lenders take advantage of borrowers who are less knowledgeable about lending practices, getting them to agree to loan terms that are not only less than desirable, but also financially damaging. Predatory lenders also target borrowers who are so desperate to obtain loans that they will agree to nearly anything. Often, people with poor credit are primary targets for lenders who engage in predatory lending practices. Individuals with low incomes are often targets, as well as women, senior citizens and minorities. However, individuals from all backgrounds, income levels and walks of life can be victims of predatory lending.

Predatory Lending and Mortgage Lending

Predatory lending is not limited to short-term lending. It is all too common among unscrupulous mortgage lenders. These mortgage lenders offer loans at very high interest rates, requiring borrowers to agree to terms that are unfair and damaging. For example, a predatory lender may include unfair pre-payment penalties or balloon payments in a loan agreement. Often these terms are hidden within very technical language, making it difficult for the borrower to fully understand what she is agreeing to. To avoid falling victim to predatory lending, avoid lenders that advertise guaranteed loan approval. Also, be wary of loans advertised through telemarketers or traveling salespeople. Thoroughly research the lending company you are considering to learn if it has been accused of predatory lending. Also, read all loan agreements carefully before you sign and make sure there are no blank spaces on your loan document. Consider consulting with a lawyer before you sign any loan documents, especially mortgage loans.

PayDay Loans

Many consider payday loans predatory lending. Typically, these short-term loans are offered to individuals without regard to credit. Though these loans are relatively easy to obtain, they are granted at unreasonably high interest rates. In fact, an individual who borrows from a payday loan company may pay more than 100 percent interest over the life of the entire loan. With interest rates so high, many payday loan borrowers find repaying their loans very difficult and in a far worse situation then when they originally applied for the loan.

 

What do lenders look at when they evaluate you?

Getting your loan approved depends on how your financial background matches the lender’s criteria. Although the criteria may change from lender to lender, the following guidelines are often used to evaluate loan applications.

Employment History: Depending on the type of loan, most lenders look for one to two consecutive years of employment within the same industry. This shows employment stability and that you do not hop from one job to another. Employment history helps lenders evaluate your ability to generate income and repay a loan.

Credit History: You must demonstrate that you can manage credit responsibly. Lenders look for a history of on-time payments. Too much debt on credit cards, or maxed-out credit lines, indicates that you may be unable to pay your debt. Pay down any short-term debt at least six months before applying for a new loan. A good rule is that you should not owe more than 30 percent of the card limit (e.g. if your limit is $1,000 you should not owe a balance over $300).

Outstanding Liabilities:How big a loan can you comfortably repay?

The size of your income dictates the amount of liability you can support. Your total monthly payments for debts (including credit card debt, car loans, student loans, existing mortgages or child support) should not exceed 42 percent of your monthly earnings.

Cash and Asset Reserves: Lenders may request information about your cash available (checking and savings). This is particularly important if you apply for a mortgage loan, as lenders may require that cash and liquid assets be available to pay at least two monthly mortgage payments.

Checking Other Documentation:

Besides the credit check, another important part of a mortgage application is the documentation a borrower provides. A bank or mortgage company is unlikely to take a borrower’s word for her income, expenses, and employment. The borrower may need to provide tax returns, bank records, and proof of income. These types of documents may be required not only of the primary borrower, but also of anyone else whose name is included as a co-borrower or co-signer on the mortgage application. Sometimes a mortgage lender will reject an application. Some of the reasons an application may be rejected include a low down payment, poor credit history, and insufficient income to cover the amount of mortgage the borrower is seeking

Knowing your Credit Score:

In Canada, to check your credit report, you have a choice of three major credit bureaus:

• Equifax Canada
• TransUnion Canada
• Northern Credit Bureaus Inc.

TIP: note that just checking your credit score too often, you may loose credit points and consequently your credit score becomes lower!

 

Home Options

Transition Housing and Support Programs:

Transitional housing programs can be an option for someone who is leaving an emergency shelter or is not yet in a position to afford living completely independently. In addition to affordable housing, many of these programs also provide supportive services to help residents build skills in money management or offer savings programs. These programs allow you to develop the skills you need to obtain permanent housing.

BC Housing provides funding for Transition Houses, Safe Homes and Second Stage Housing programs that support women (with or without dependent children) who have experienced violence or are at risk of experiencing violence by providing temporary shelter/housing and support services.

Last year, approximately 13,000 women and children stayed at Transition Houses and Safe Homes in British Columbia.

Transition Houses provide:

• Emotional support, crisis intervention, safety planning
• Safe, temporary 24/7 staffed shelter, typically for 30 days
• Referrals to and assistance in accessing support services and housing, financial, medical and legal assistance

Safe Homes are often located in small, remote communities where there typically is not a Transition House.

Safe Homes provide:

• Emotional support, crisis intervention, safety planning
• Safe, temporary short term shelter, typically for 5-7 days
• Referrals to and assistance in accessing support services and housing, financial, medical and legal assistance

Second Stage Housing supports women who have left abusive relationships make plans for independent living.

Second Stage Housing provides:

• Emotional support, crisis intervention, safety planning
• Safe, affordable, temporary housing, typically for 6-18 months
• Referrals to and assistance in accessing support services and housing, financial, medical and legal assistance

TIP: To be able to apply to second stage housing, you should have stayed in a transition house.

Third Stage Houses provides:

• Supportive housing for women who have left violent relationships and who no longer need crisis service supports.
• Independent long-term housing with lengths of tenancy from 2-4 years.
• Varying levels of support but not staffed 24 hours a day or 7 days a week.

The Supportive Housing Registration (SHR) application and registration service provides a single point of access for supportive housing funded through BC Housing. The goal is to facilitate the transition from homelessness to supportive housing by allowing applicants and the agencies supporting them to submit only one application, rather than registering with multiple providers.

Low income adults who require support services to achieve successful tenancies and who:

• Are homeless or at risk of homelessness
• May have mental and/or physical health needs
• Need safe, affordable housing; or
• Current supportive housing tenants applying for a transfer to a supportive housing location that will better meet their needs.

The SHR Application is available at the BC housing website or offices across the province, as well as from many non-profit agencies that assist individuals with their search for housing.

 

Rental Properties

Before you look for an apartment, room or house to rent, determine how much you can afford to pay each month. Housing experts generally recommend that you limit your rent to 25 to 30 percent of your income.

Example, if your gross monthly income is $1,600, you should look for something that costs no more that $400-$480 a month.

Also, determine the size home you need and whether you need to live near your work, family, bus line, store, bank, etc. Example, if your monthly income is $1,600, you should look for something that costs $400-$480.

Before you rent:

Define your needs. Do you prefer to rent an apartment, town-home, or mobile home? What size rental do you need (studio, one bedroom, two bedrooms or more)? Keep in mind that additional fees such as utilities or lawn maintenance fees vary from landlord to landlord. Be sure to inquire about any additional fees that you may be expected to pay.

•  Decide what you want.
•  Find out what the law says.
• Read and understand what the rental agreement says.
• Find out who will be responsible for repairs and maintenance.
• Know who handles disputes between landlords and tenants

Then follow the steps below:

Step 1 Pay outstanding utility bills. Make sure all utility bills in your name are current.

Step 2 Look for a rental. There are several ways to find rentals, word of mouth, newspaper, online, or by driving through areas where you’d like to live.

Step 3 Submit your application. In most cases, you will need to complete an application. Typical applications include questions about your rental history, employment, and financial and personal information. Be prepared to provide the name and contact information for previous landlords.

Step 4 Move in. Once your application is approved and you accept the landlord’s terms, sign the lease (after reading it carefully) and move in.

 

Buying Your Home

A home is likely the most expensive purchase that you will make in your lifetime. Buying a home is a huge commitment, and you should not make the decision lightly. Do as much research as you can on everything from the neighbourhood you want to live in, to finding the best real estate lawyer, to the mortgage options available. Check out the Mortgage Savings

Calculator and the Rent or Buy Calculator found in the Spending Smarter section of the Consumer Connection Web site (consumer.ic.gc.ca) to find out if buying a home is an option for you.

A word about condominiums If you are considering a condominium,you’ll need more information. Find outif there is any condominium legislationin your jurisdiction.

The Real Cost of Buying a House

Most people use a mortgage to finance the purchase, and pay for it over a number of years. Are you ready for this commitment? Is your employment stable? What types of changes may occur in your life in the next five years?

You need to determine how much house you can afford. Financial institution will help you assess your situation. Home buying involves immediate expenses and long-term changes to monthly spending. Immediate costs include appraisal, home insurance, legal fees and disbursements, utility hookups, and home inspections. The Canada Mortgage and Housing

Corporation (CMHC) Web site (www.cmhc-schl.gc.ca) has an on-line Consumer Guide and Workbook that includes an excellent list of other expenses to be considered when calculating your home buying costs.

Monthly expenses will also change with new or increased spending on utilities, repairs, appliances, homeowner’s insurance, tools and decorating. All will have to be included in your new spending plan.

The Down Payment

You’ll be expected to have money available for a down payment when you ask your lender for a mortgage. The CMHC says down payments generally range from 5 to 25 percent of the purchase price.

The larger the down payment, the smaller the mortgage, and the less interest you will pay in the long run.

Also, the amount of down payment will determine if you have to buy mortgage insurance. Mortgage insurance protects the lender if you don’t make your payments. It doesn’t protect you, the buyer. You pay the premium.

Getting a Mortgage

When you know how large a mortgage you can afford, you’re ready to decide the conditions of the mortgage:

• the length of the amortization period;
• the term, or length, of the actual loan;
• the method of repayment;
• the frequency of your payments;
• the type of interest rate: fixed or variable; and
• the type of mortgage: conventional or high-ratio, open or closed.

Type of mortgage

You can get a conventional mortgage or a high-ratio mortgage.

With a conventional mortgage, you usually can’t borrow more than 75 percent of the appraised value of the property. This means that you have to make a down payment of 25 percent or more of the property value. Some financial institutions require a down payment of more than 25 percent of the property value. With a high-ratio mortgage, you borrow more than 75 percent of the value of the property and you will have to buy mortgage insurance to protect the lender.

You can also get an open mortgage or a closed mortgage.

With an open mortgage, you can make additional payments on the principal or pay off the mortgage completely without notice or penalty. Different types of open mortgages are available, so check with your financial institution.

With a closed mortgage, you cannot make extra payments. Rates are usually lower for closed mortgages. You can negotiate to make additional payments, such as weekly payments, before you sign your mortgage.

Making an Offer to Purchase

Once you have found a house that you want to purchase, there are several things you should do. It is always a good idea to inspect the house thoroughly. Check the plumbing, the roof, the foundation, etc. You may wish to hire a professional inspector to ensure that you don’t run into costly surprises.

It is critical that you hire a real estate lawyer to help you interpret legal documents and avoid potential problems.

When you make an offer to purchase a home, be sure to include all pertinent details, such as the following:

• the name of the buyer and the seller;
• a legal description of the property;
• the amount of the offer;
• a list of any extras to be included in the purchase price, such as appliances or window dressing;
• any conditions that must be met before the offer is finalized;
• the date and time that the offer will expire;
• the closing date, including the deadline for signing legal documents and transferring the title; and
• the condition of the home upon transfer of ownership (cleanliness, filled oil or propane tanks, etc.).

 

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