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Government Home Loans

Government Home Loans

'Twixt my house and thy house the pathway is broad, In thy house or my house is half the world's hoard; By my house and thy house hangs all the world's fate, On thy house and my house lies half the world's hate.

(Rudyard Kipling)

Whether we like a Victorian deco with royal gardens or a picket-fenced ramblers, the idea of owning a home is attractive. Home ownership today is not an age-old or post retirement reality, but a dream of youthful minds. Investing in a house puts our money on a roll mainly for two reasons appreciation in Property value and a continuous increase in paying trend of rents.

While rents continue to rocket skyward, owning a house can mean huge savings because:

• The amount which is paid towards rent can be utilized in buying a home funded by mortgage.

• The interest paid on mortgage is tax deductible and you can make a decent amount of savings on your taxes.

• Also, mortgage payment goes towards home equity, which works like an emergency line of credit it can be tapped to make home improvements or pay for an unexpected expense like a medical bill. And, if you decide to move after few years, you can sell your house and walk away with the equity invested by you over a period of time. This equity savings can be utilized as down payment towards your next purchase on house or you can simply encash as a deposit in your bank account.

Mortgage belongs to French origin and is defined as a method of using property as a security for the payment of debt. Mortgage is strongly associated with loans secured on Real Estate across many countries. Purchasing a residential or commercial property without paying the entire amount upfront is the objective of arranging a mortgage.

In many countries like India, UK, USA and Spain where demand of home ownership is high, mortgage

is the most normal and convenient aid available to the owner. home loans are available from several types of lenders commercial banks, mortgage companies and credit unions.

Whether you are a first time buyer or simply starting over, there are various types of mortgage or home loans offered in the market. Conventional Home Mortgage Loan Program, Fast & Easy Home Loan Program, Expanded Criteria Home Mortgage Loan Program are few examples of the existing types of home loan programs. Today this industry holds a revenue value of $3.8 trillion.

Most state capitals of a country have a housing finance agency, representing the government, which provides a wide array of options on home mortgages.

Government sponsored home loan programs are inclusive for people who want to buy or refinance a home in urban neighbourhood, people who have served in the military or people who want to own property in the rural area itself.

Mortgage plans are created to increase home ownership as well as promote revitalization in central, urban, low and moderate income areas.

For example, Housing and Urban Development of United States offers loan insurance programs which requires cash

payment upfront in the range of 3-4%. There are no income requirements. Such loans do not carry a prepayment penalty either. This type of loan is serviced by private lenders, usually by a bank or other money lending institutions.

Mortgage lending is amongst the major businesses in the United States. Federal government creates such government sponsored entities. These programs work by buying a large number of mortgages from the banks and issuing mortgage backed bonds at a lower interest rate to the investors. This allows the bank to relend the money to the other borrowers faster, thus creating more mortgages. At the same time, the investors earn low-risk income at a higher interest rate.

Below mentioned are some of the popular programs aided by the government:

• Government National Mortgage Association

• Federal National Mortgage Association (popularly referred as Fannie Mae)

• Federal Home Loan Mortgage (popularly referred as Freddie Mac)

Now, we shall turn the globe to the other side and see how government aided home loans have improved the buying capacity of house owners in the United Kingdom.

Unlike United States, there is no intervention of the government or state in the mortgage market. This business is purely run by building societies, credit unions and banks. Since 1982, innovative schemes have come into the limelight due to deregularisation of the money lending market. Mortgage offer a variable rate or standard variable rate or track rate depending on how the funds are borrowed, i.e. from the money market or deposits in the bank. These mortgage rates are aligned with the guidelines of Bank Of England. To attract new borrowers, financial institutions offer attractive schemes which contains discounts, cash back facility, fixed rate of interest and cap rate of interest (interest cannot rise above the cap, but can vary below cap rate and is offered on long-term period like the fixed rate).

Mortgage lenders decide on the loan value usually on the basis of the borrowers annual income derived from the salary on the wages slip. However, in certain cases where the income earned is from mulitple resources (self-employed, professional) and lacks documentation to prove their source of income, take the respite of Self Cert Mortgage. However, high interest rate and low loan value are the downside of this type of mortgage.

For the first time buyers, 100% Mortgage scheme is offered, where the bank requires the borrower to pay a certain percentage of loan amount in the form of deposit, this enables to safeguard the lenders money. High rate of interest is the disadvantage of this mortgage.

In the UK home loan market a valuation fee is charged upon a visit to survey the property, ensuring its worth to cover the mortgage amount. However, it overlooks the defects of the property, which the buyer needs to know before investing his hard earned cash.

Therefore, an investor must consider these nine steps to buying a home:

• Calculate your budget that you can afford to buy a home.

• Know your rights (VA Loans available for a veteran or a Military personnel).

• Learn about home buying programs.

• Make a comparative analysis about the various loan options available in the market.

• Shop for the right choice of home.

• Make an offer.

• Make a home inspection.

• Shop for home owner insurance.

• Carefully read and sign the legal documents related to your property.

Today people who dont have a good income are less concerned about building their assets, as their governments have provided efficient means of home loans that not only meet their budget pockets, but also helps in fulfilling their dream of constructing and owning a house.

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