1. Bank accounts offer convenience
For example, if you have a checking account, you can easily pay by check or through online bill pay. It's also cheaper than buying a money order (and you'll have proof of bank statements that you paid your bills). If you get an Automated Teller Machine (ATM) or debit card for the account, you can withdraw money easily or make payments at stores. A debit card is usually accepted for purchases anywhere credit cards are accepted.
2. Bank accounts are safe
Your money will be protected from theft and fires. Plus, your money will be federally insured so if your bank or credit union closes, you will get your money back. The maximum amount of money that can be insured is $100,000.
3. It's an easy way to save money
Many banks offer an interest rate when you put your money in a savings account. The interest will help your money grow over time. Be sure to shop around and check what fees are involved - you don't want to wind up paying more in fees than you are gaining in interest.
If you have a checking and saving account with the same institution, you can have your money transferred periodically from checking to savings, putting the money aside to help grow your savings.
4. Bank accounts are cheaper
Banks and credit unions generally offer their account holders free or low-cost services:
- Cashing checks: Using a check cashing outlet really adds up. You can deposit and cash your checks at the institution where you have a bank account for free.
- Paying bills: Without a bank account, you probably rely on check cashing outlets, telephone bill pay or money orders—all of which have attached fees—to pay your bills. With a checking account, you can write checks for free or pay online at a low cost.
- Transferring/wiring money: If you use a money transfer company to wire money to another person’s account, you will pay a fee, usually a percentage of the amount of the transfer. Depending on the amount you want to transfer, this fee can be expensive. If you wire from your bank account to another person’s account, your bank will usually charge a flat rate that is generally lower than the money transfer company.
- Accessing cash: When you need cash but don’t have a bank account, you may decide to use a credit card to get a cash advance from an ATM. The credit card company will charge you a transaction fee and interest. If you have a bank account and an ATM or debit card, you can access your money from your own bank’s ATM for free. Although you can access your money from any ATM, you will likely pay a transaction fee if you use an ATM other than your bank.
5. Bank accounts can help you access credit
Banks and credit unions can help you access credit to acquire a home, a car, student or personal loan, because banks tend to favor existing customers, particularly those who manage their money well. Plus, going to small loan lenders that lend you cash quickly can be quite expensive because they charge lending fees and high interest rates.
While bank accounts are preferred over check cashers and piggy banks, banks will also have fees that you should be aware of. For example, banks will charge you if you use your debit card on an ATM that is not theirs. Also, depending on the type of account you have, you must maintain a minimum balance of a certain amount to avoid being charged. It's always best to shop around for the best product that fits your needs.
Life has a way of surprising us. As a family grows from one to three children, you suddenly need more space - this means a new house. Life rolls merrily along until you stop short and realize those three children are now all in high school. This means they'll be heading off to college soon. These life-changing events are the catalysts for some of life's major purchases.
When you need to access money for these large commitments, you need to do your homework to understand what you're getting into prior to signing on the dotted line of a house mortgage or a student loan.
The Accessing Money building block covers shopping for mortgages and college financing. But it also takes a look at possible tax credits for which you may be eligible and other tax programs that give you back money or reduce your taxes, such as the Earned Income Tax Credit (EITC).
Mortgage brokers arrange transactions rather than lending money directly. In other words, they find a lender for you. A broker’s access to several lenders can mean a wider selection of loan products and terms from which you can choose.
Brokers will generally contact several lenders regarding your application, but they are not obligated to find the best deal for you unless they have contracted with you to act as your agent. Consequently, you should consider contacting more than one broker, just as you should with banks.
Whether you're dealing with a lender or a broker may not always be clear. Some financial institutions operate as both lenders and brokers. And most brokers’ advertisements do not use the word "broker." Therefore, be sure to ask whether a broker is involved. This information is important because brokers are usually paid a fee for their services that may be separate from and in addition to the lender’s origination or other fees. A broker’s compensation may be in the form of "points" paid at closing or as an add-on to your interest rate, or both. You should ask each broker you work with how he or she will be compensated so that you can compare the different fees. Be prepared to negotiate with the brokers as well as the lenders.
It's best to get information from several lenders or brokers before you commit to a mortgage.
Owning a home can be one of the most valuable investments you make. Whether you're shopping for a mortgage or considering a reverse mortgage, you should be aware of the many details and the terminology involved before you sign any papers.
If one day you find yourself behind on or unable to make your mortgage payments, it's best to confront the situation and find help as soon as possible to avoid foreclosure. You also need to beware of scams that claim to rescue your home from foreclosure. If it seems too good to be true, it is.
Shopping for a Mortgage
Always shop around for a home loan or mortgage. It will help you find the best financing deal. A mortgage—whether it’s a home purchase, a refinancing or a home equity loan—is a product, just like a car, so the rate and terms may be negotiable.
You’ll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing and negotiating may save you thousands of dollars. You're also better off if you understand the process and details involved before committing to any loans and common terminology used in the industry.
Home loans are available from several types of lenders:
- Savings banks
- Commercial banks
- Mortgage companies
- Credit unions
Different lenders may quote you different rates and terms so contact several lenders to make sure you’re getting the best offer for your financial situation. You can also get a home loan through a mortgage broker. To compare lenders, brokers and their products, ask for information about the same loan amount, loan term (length of time to pay it back) and type of loan (a fixed rate versus a variable, for example).
For most people, their home is their biggest asset. Before you sign any papers, you need to ask the right questions and know all the costs associated with the mortgage itself as well as those associated with obtaining it.
You need to compare products offered by different lenders and brokers. To the extent possible, ask for information about the same loan amount, loan term, and type of loan. You can also contact a home-buying counselor to help you get started.
Prospective home buyers should also be aware of common pitfalls and potential unethical practices. If you're uncomfortable going through the mortgage process alone, then seeking professional advice makes good financial sense.
Review the list of questions below and from them, begin to prepare you own. Before you even start looking for home, you should pretty much know the answers to them all.
- First and foremost - how much house can you afford? To figure this out, you need to establish a monthly budget to determine what you'll be able to afford as a monthly payment.
Before getting a mortgage (borrowing money to buy a home) or taking out a loan with your home as collateral (home equity loan), be sure that you are able to pay back the loans according to the agreed repayment schedule, including the principal, interest, taxes, insurance and any assessment fees. Be sure you can make payments under the most expensive rate chargeable under the loan. This is important because the lender has the right to take your home away from you if you are unable to pay off your debt.
- Second, how much of a down payment you can afford? Lenders do offer products with lower down payments by wrapping the down payment into amount of the loan. You may be required to carry loan insurance to cover the balance in the event you default on the loan.
- Interest rate
Ask each lender and broker for a list of their current mortgage interest rates and whether the rates being quoted are the lowest for that day or week.
Ask whether the rate is fixed, adjustable or a hybrid. Keep in mind that when interest rates for adjustable-rate loans go up, generally so does the monthly payment.
If the rate quoted is for an adjustable-rate loan, ask how your rate and loan payment will vary, including whether your loan payment will be reduced when rates go down.
Ask about the loan’s annual percentage rate (APR). The APR takes into account not only the interest rate but also points, broker fees and certain other credit charges that you may be required to pay, expressed as a yearly rate.
When shopping for a mortgage, check if it is an interest-only loan, which means that the payments will go toward the interest due and not the principal. Some mortgages require that borrowers pay only the interest on the loan and not the principal until the loan matures (reaches a certain date). When the loan matures, the full principal is due. - Points – Points are fees paid to the lender or broker for the loan and are often linked to the interest rate. Usually the more points you pay, the lower the rate.
Ask for points to be quoted to you as a dollar amount—rather than just as the number of points—so you actually know how much you'll have to pay.
- Fees - A home loan often involves many fees, such as loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. Every lender or broker should be able to give you an estimate of its fees. Many of these fees are negotiable. Some fees are paid when you apply for a loan (such as application and appraisal fees), and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs. "No cost" loans are sometimes available, but they usually involve higher rates.
Ask what each fee includes. Several items may be lumped into one fee.
Ask for an explanation of any fee you do not understand. - Down Payments and Private Mortgage Insurance - Some lenders require 20 percent of the home’s purchase price as a down payment. However, many lenders now offer loans that require less than 20 percent down. If a 20 percent down payment is not made, lenders usually require the home buyer to purchase private mortgage insurance (PMI) to protect the lender in case the home buyer fails to pay. When government-assisted programs such as FHA (Federal Housing Administration), VA (Veterans Administration), or Rural Development Services are available, the down payment requirements may be substantially smaller.
Ask about the lender’s requirements for a down payment, including what you need to do to verify that funds for your down payment are available.
Ask your lender about special programs it may offer.
If PMI is required for your loan:- Ask what the total cost of the insurance will be.
- Ask how much your monthly payment will be when the PMI premium is included.
To compare products offered by different lenders and brokers, to the extent possible, ask for information about the same loan amount, loan term, and type of loan. You can also contact a home-buying counselor to help you get started.