Adding co-owners to a deposit account vs. alternative arrangements. Under FDIC rules, a joint account is a deposit account owned by two or more people who have equal rights to withdraw 100 percent of the deposits and to close the account. "For a couple wishing to share common funds, the upside is that each person may write checks and pay bills from the account, which is certainly a convenience in managing a household or as someone needs assistance," said Joni Creamean, Chief of the FDIC’s Consumer Response Center.

In addition, each co-owner is insured for up to $250,000 for his or her share in all joint accounts at an insured bank. "For someone who wants to add co-owners primarily for convenience purposes or accessing funds in an emergency, carefully consider how limits on withdrawal rights could affect your insurance coverage," warned Martin W. Becker, an FDIC Senior Deposit Insurance Specialist.

For example, if a single mother adds two children as co-owners but specifies that they must act together to withdraw any funds, the three individuals do not have equal withdrawal rights and the account would not necessarily be FDIC-insured up to $750,000 ($250,000 for each person named). "In this situation," Becker explained, "the FDIC would have to look to state law to determine the ownership interest of each person and would provide deposit insurance coverage accordingly."

Becker noted that there is another, better way to give someone limited access to a deposit account on an as-needed basis without granting ownership rights. That is to obtain a power of attorney — the written authorization for one or more people to represent or act on another’s behalf in financial affairs or other personal matters. Powers of attorney can be broad, allowing unlimited access, or narrow, limiting access to accounts.

Allowing others to access your safe deposit box. The rules and procedures for safe deposit boxes can vary by state and by bank, so ask your bank about the options for granting someone access and what you would have to do if you later change your mind. "Remember that this person could go to the box and take anything out, without your approval," explained Edward Nygard, an FDIC Senior Consumer Affairs Specialist.

Adding co-owners vs. "authorized users" to a credit card account. A co-owner is financially responsible for all debt incurred, including any charges by an authorized user. Depending on the cardholder agreement, authorized users may or may not be financially responsible for any debt on the card. A card owner also may be able to place restrictions on authorized users, such as limits on amounts that can be charged.

Think carefully before you co-sign a loan. "If the other co-signer does not pay the debt, you will have to," Creamean said. "You may also have to pay late fees and collection costs, which increase the debt amount. Additionally, your credit rating could be affected if this person fails to pay or pays late."

Want more guidance about adding names to accounts? Consider consulting an attorney, your banker or another advisor.

A house could be the biggest purchase you will ever make, and the process of shopping for a home and obtaining a mortgage can be overwhelming. However, there are steps you can take to make the process more manageable and the purchase more attainable.

Know Your Credit History and Score

One of the key factors in getting approved for a loan is your credit score. Your credit history determines your score, and the higher the score, the better the loan terms become. You are entitled to a free credit report once every 12 months from each of the three nationwide credit bureaus: Transunion, Experian, and Equifax. Go to www.AnnualCreditReport.com, the official site for consumers to obtain free credit reports, or call 1-877-322-8228. If you notice any errors on your report, work on correcting them as soon as possible. The Federal Trade Commission offers helpful suggestions on how to fix errors on credit reports at Disputing Errors on Credit Reports.

A high credit score helps you not only get approved for a mortgage, it also improves the terms available. Here is a breakdown of the five major components that make up your credit score.

• Payment History – Reported payments account for 35% of your total credit score. Late payments will affect your score negatively, so it’s important to consistently make payments on time.
• Credit Utilization – How much of your credit is in use makes up 30% of your score. If you reach the credit limit on your credit cards, it lowers your credit score. Do your best to start paying down credit card balances to free up your credit.
• Length of Credit History – How long you have been using credit and making payments as well as the amount of time each of your credit accounts have been open is 15% of your total credit score. If you’re trying to clean up your credit, closing accounts may not necessarily be the answer. It may be best to pay off accounts and keep them open to maintain long standing accounts.
• New Credit – Be cautious when opening new credit accounts, which accounts for 10% of your score. Opening too many new accounts in a relatively short period of time could hurt your score.
• Credit Mix – The remaining 10% of your score relies on the variety of credit accounts you have. Having a mix of revolving credit accounts, such as credit cards, and installment loans, including auto loans and student loans, with positive payment histories show that you can manage different types of credit and will increase your score.

Remember, the higher your credit score as a potential buyer, the lower the risk to a potential lender.

How Much Can and Should You Spend?

When reviewing mortgage applications, lenders pay close attention to your debt-to-income ratio (DTI). DTI shows how much of your monthly gross income – your income before taxes or other deductions are taken out – goes to monthly debt payments. Many lenders prefer that your total monthly debt payments, which include housing payments, auto loan payments, student loan payments, and minimum credit card payments, not exceed 40% of your gross monthly income. Some lenders prefer a DTI of 36% or less. Others may accept a higher ratio.

When looking at your finances to determine how much you can afford for a monthly mortgage payment, keep in mind that the payment will include not only the loan principal and interest but also taxes, homeowner’s insurance, and possibly mortgage insurance (lenders require you to pay mortgage insurance when your down payment is less than 20% to protect the lender in the event you default on the loan). While you will need more information to get an exact figure of the house price you can afford, such as the interest rate on your loan and how much of a down payment you will have to put toward the purchase, look at your DTI as discussed above to get a better idea of the monthly payment that will fit your budget.

Many websites have calculation tools that can help you determine how much you can afford and the amount your monthly payment will be under different scenarios. The U.S. Department of Housing and Urban Development’s (HUD) maximum financing calculator is a good place to start and can be found at FHA Maximum Financing Calculator.

For more information on figuring out how much you can afford, visit:

Figure Out What I Need and Want in a Home.

Estimate What I Can Afford for Housing.

Mortgage Moves: How much can you afford?.

Decide how much you want to spend on a home.

Save, Save, Save

Having savings makes it easier to purchase a home. Saving can be hard given the challenges many first-time home buyers face with high housing costs and student loan debt, but most lenders require a down payment, and you will likely be responsible for closing costs. You will also want to have money available once you complete the purchase for maintenance or repairs in your new home. So let’s look at the possibilities.

To increase your savings, see if there is a way to tighten your budget and lower your current housing costs. Automating your savings may help keep you on task with obtaining your savings goals too. Check with your bank about linking a savings account to your checking account and creating a regular automatic deposit to the savings account. In addition, automatic savings apps, which help you save by rounding up certain purchases to the nearest dollar and setting the money aside, can add a little extra to your savings.

You may also be able to take advantage of down payment and closing cost assistance programs offered by government agencies and non-profit organizations. Be sure to take the time to research what is available and what your qualifications are to apply for these special programs. Start with HUD’s website for more information about assistance programs in your state: HUD - Local Information. HUD also provides lists of approved housing counselors in each state that can help with the home buying process: HUD Approved Housing Counseling Agencies.

For suggestions on how to save money with worksheets to help you plan to save visit: Money Smart - Your Savings.

Start Organizing Documents

When you apply for a mortgage, most lenders will want one or two months of paystubs, two years of tax filings, three to six months of bank account statements, information about any retirement savings, and other documentation specific to your financial situation, such as explanations of any recent large deposits or withdrawals from your bank account. It can be overwhelming to pull together so much information in a short timeframe, so start early. By getting these documents in order at the beginning of your house hunting journey, you give yourself time to ensure you have all of the documents the lender requires.

When you’re ready to buy a house, understanding the costs and benefits, researching your credit and housing options, and building your savings are the best first steps toward owning your first home. In the next article, we’ll take a look at the next step in the home buying process: applying for a mortgage.

THIS ARTICLE WAS PROVIDED BY THE FDIC, view article here.

Are you one of the consumers standing in line to pay bills, paying to cash checks, and leaving your money unprotected? There’s a better way.

If you are one of the over seven million U.S. households without a bank account, and you are thinking about getting an account, now is a good time to open one. Many FDIC-insured banks offer accounts with low (or no) monthly maintenance fees when you have direct deposits or maintain a minimum balance. Many of these accounts also offer free access to the bank’s and sometimes certain other banks’ automated teller machines (ATMs) and have $250,000 of federal deposit insurance.

#GetBanked

If you are thinking about opening your first bank account, a “checkless” checking account could be a good option. With a checkless account, you can make purchases with a debit card and many FDIC-insured checkless checking accounts allow you to access your account and pay your bills online or through a mobile app.

A number of banks offer low-fee accounts and no overdraft or nonsufficient funds fees (NSF) like a BankOn Certified Account. In addition, these accounts may provide free ATM and branch withdrawals.

Banks offer many different types of accounts and programs to fit your needs. 

To find an FDIC-insured bank in your area, visit BankFind. A number of organizations have compiled lists of banks that offer accounts that can be opened online. You can find those organizations as well as some additional tools and resources at #GetBanked.

Get Back into a Bank Account

If you have had a bank account in the past but find yourself without one now, you are not alone. Approximately 50 percent of households without a bank account today had one before. Today, more account options exist than in the past that may be a better fit. If you are thinking about re-establishing a banking relationship, consider the following:

• Visit BankOn, an organization that promotes low or no cost checking accounts. They maintain a list of banks that offer accounts with certain features, such as low monthly maintenance fees – these are called “Certified Accounts”. Banks offering BankOn Certified Accounts can be a good place to start building a banking relationship.
• Read through financial education resources to help build financial skills. 
• Some banks use checking account reports to help decide whether to offer consumers a checking account. You can obtain a copy of your checking account report from the checking account reporting companies that compile account history to see if there are any errors or any past reported issues you can resolve.

Avoid tricksters and scammers

Federal banking regulations provide certain protections for consumers with deposit accounts held at a bank. These protections limit your liability in the event of fraud related to your deposited funds. For more on these regulations, visit: What You Need to Know About Credit and Debit Card Billing Issues. Helpful tips on avoiding scams can also be found at: Money Smart for Older Adults and FDIC Consumer News: Beware It’s a Scam!

Your financial well-being

Getting and maintaining a bank account can be an important first step toward financial well-being. Even if you are rebuilding a banking relationship, visit FDIC’s #GetBanked for a number of organizations and banks able to help. #GetBanked – “There’s a Better Way!”.

THIS ARTICLE WAS PROVIDED BY THE FDIC, view article here.

For more tips and information on opening and managing a checking or savings account, search by topic in recent issues of FDIC Consumer News and at www.mymoney.gov.