Preparations for USA
Taking home loans in USA
preparation for taking home loans is very essential .One has
to be prepared to meet lots of expenses before getting a home
loan. Funds have to be saved for down payments, mortgage- insurance,
closing costs, brokers commission etc.
Saving money for down payment for a home before shopping for
one is essential. The saving budget should be well adjusted
after carefully scrutinizing the spending habits. Banks donot
like that you go for a finance advice
for these payments and insist that this should be your own money
or at the most borrowed from reliable sources such as parents. Overseas the reaction against the banks is stronger. There is a reason for this. It is argued that in case of a
non payment the bank has to recover this loan also apart from
the home loan and in case the loan amount is decided to be higher
than the value of home how shall this amount be recovered
Down payment is usually expressed as a percentage of the value
of home. Earlier it used to be 20 %, but now finance advice
is available where you have to give up-to only 3 %. But this
will depend upon the credit reports and past repaying records.
The Government aided programs give a relief from these payments
by asking for 0% or a minimum payment ,but the qualifying red
tape is to be thought of and tackled first. FHA (Federal Housing
Administration) and VA (Veterans Affairs) are the most popular
programs and for the rural people Rural housing service (RHS)
does the same thing.
If the down payment is less than 20% then lender will ask you
for PMI (Private Mortgage Insurance ). This protects the lender
in case of a default. The insurance premium is to be paid and
a certain fees is also needed hence finance is to be arranged
for this. However once 20% of the amount has been paid off then
this insurance is cancelled after informing the lender. Naturally
the monthly payments are also stopped for insurance after that.
the lenders allow the money from gifts to be used for down payments.
The gift can come from family, friends or other sources but
an undertaking is to be given to the lender that the gift is
not to be returned. This is known as Gift letter. Even after
this the lender will take a small portion of your savings as
The borrower has to deposit some amount at the time of getting
an offer this is known as earnest money. This money is adjusted
as the down payments if the deal goes through otherwise it is
refunded. The amount depends upon the lender.
At the time of taking loan apart from the down payments one
has to pay some amount as fees also which can run into thousands
of dollars. Fees associated with buying or selling a home is
called the closing cost. Some fees are assigned to the buyer
or seller and some other are negotiable and assigned as per
Buyers closing costs
In case a home is being bought the lender has to give an estimate
of costs in advance. The
fees varies as per many factors. A typical list of costs to
be paid by the buyer are as follows
The down payment
fees (points, application fee, credit report)
Documentary stamps on the note
Sellers closing costs
you are selling the house then the first payment will have to
go for any loan that is left behind along with the fees etc.
This fee etc is known as the closing cost. The total of these
two are conveyed to the escrow officer. After paying off these
two the seller finance advice
will receive any proceeds from sale.
The seller closing costs can include
Documentary Stamps on the Deed
Normally all these costs are negotiated as per the condition
of house. It is however good to record all these negotiations
to avoid any trouble later on.
Paying for points
Homebuyers often have an option of choosing a lower interest
rate by paying points. A point is equal to 1% of the loan amount.
Say if loan is $200000 then a point is $.2000 . AS an example
one loan offer was 3.25 points at 7.5% and 0 points at 8.25
% . This means thr normal rate of 8.25 % could be reduced to
7.5% by paying at initial stage an amount equal to 3.25 points
. In other words if loan is $200000 then the payment is 3250*2
= $6500 .
So many times one saves lot of money by paying reduced monthly
payment due to the reduced rate of interest. If the above loan
is taken then one will save $6500 in a short period of say 5
Yrs and then if the finance advice
loan is for 30 years all the other saving will be the borrowers.
In general the paying of points is beneficial if the borrower
plans to stay on in the house for a very long period. However
for short periods the interest rate reduction is not very profitable.
In USA the money paid for points is tax free. In Mortgage loan
the full amount paid can be deducted in the year loan is taken
. For refinancing loans the amount given for points can be deducted
in full term of loan . This means that if $6500 is paid as in
the example above and the loan is refinancing loan for 15 Yrs.
Then an amount 0f $6500/15 ($434) can be deducted every year
for the next 15 Years.
Before applying for home loan one has to save enough money to
pay of certain charges. There are some amounts that can be estimated
after consulting the lender companies. When finally it is decided
to go for the loan all these payments should be taken as estimate
in writing from the lending company . Loan officers are normally
hired for these jobs and they should be able to thrash a good
deal right at start.
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