When buying a home, whether you are a first-time or seasoned homebuyer, you may get stressed out during the process. Unplanned financing is one of the biggest causes of stress. However, educating yourself and being prepared can significantly ease the home buying process. Here are ten must-know facts about home loans.
#1. You May Qualify for Down Payment Assistance
Saving for a down payment is not an easy job. Down payment assistance is the type of an interest-free loan, or it can be a grant, which means it doesn’t need to be paid back. In some cases, you don’t have to have low income or be a new homebuyer. Government sponsored programs, down payment assistance programs for veterans, and private sector opportunities can help with this. Discuss with your lender or trusted agents to learn more about programs you can qualify for.
#2. Mortgage Credit Certificates Are Available in Some Cases
It can be a great advantage for the new homebuyers. In this case, some local or state government offer a tax credit as a home buying incentive, which comes from a fixed portion of the interest you pay every year on your home loan. It is not a tax deduction, but a credit, meaning a mortgage lender can estimate the credit amount you will receive and take it as income, which enables you to potentially afford a more expensive home.
#3. You Can Shop Lenders
Many people mistake that they cannot compare lenders. They assume they have to work only with their personal banks or it may be too costly and time-consuming to shop around. People with credit issues may think they have just one option. To make sure you get the best deal, talk with several different lenders or you can also work with a mortgage broker. A broker may not lend the money, but arranges the transaction and helps you find the best suitable lender for your particular situation.
#4. You Can Negotiate on Closing Costs
All the costs and fee involved in home buying can add up quickly, which can be particularly intimidating for low-income buyers. You may be able to negotiate with the seller to pay all or some closing cost for you, but it depends on the housing market in your locality.
#5. Location-Based Loans May Be Available
If you are looking to purchase a condo or house in a specific area, like an urban renewal neighbourhood or a place that has been destroyed by a natural disaster, you may find additional financing opportunities.
#6. EMI Remains Constant
The EMI or Equated Monthly Installments is the amount you have to pay each month to repay your loan. It is actually an unequal combination of the interest rate and the amount of your loan. Throughout your repayment period, the EMI remains the same. For example, if your EMI is $100, you will have to pay this amount for the next 3 years or until the time your loan is repaid.
#7. Types and Conditions of Disbursement
There are two types of disbursement; full disbursement and partial disbursement.
In full disbursement, the entire cost is paid at once when the home loan company gives the payment to the seller. It is always paid in a check, never in cash, when all the required documents are submitted and down payment is made. If it’s a resale, the check will be made out in the seller’s name and if you are buying a home from a builder, then it will be in the builder’s name.
Unlike full disbursement, partial disbursement is made in steps or stages. When buying an under-construction apartment from a builder, the home loan company won’t release the entire payment at once, but in stages.
For example, when the construction of the first floor is completed, 20 percent of the payment will be given and when the last floor is constructed, 45 percent of the payment will be made. Therefore, construction and payment are associated and disbursed accordingly.
#8. Advanced Disbursement Facility May be Applicable
Advanced disbursement facility is when the home loan company makes the entire payment before the construction is completed. This is called the advanced disbursement facility and it is applicable on both of the following situations:
- If the home loan company is requested by the buyer to do so.
- If the builder convinces the home load company to complete the construction on time.
#9. You May Have to Pay Pre-EMI
When you purchase an under construction home, your home loan company – loanable won’t pay the builder the entire amount, but in stages. As the home is built completely, payment will be released. This procedure is called partial disbursement. EMI is typically paid after the final disbursement. By that time, you may have to pay the loan company an interest rate on the partially disbursed amount. Such interest is known as pre-EMI. Therefore, the longer your builder takes to complete your home, the more you have to pay.
#10. Get the Offer Letter
When your loan is sanctioned, you will get an offer letter with a number of details mentioned.
- Amount of loan
- Interest rate
- Flexible/fixed interest rate
- EMI amount
- Tenure of the loan
- Details of the scheme – only if offered under a special scheme
- Other terms and conditions of the loan
However, this letter doesn’t mean that the loan is yours; it only means the compass has agreed to consider your application and you as one of its customer. The home loan company will observe the different property and legal documents and value the property you are intended to purchase. Once these formalities are done, the loan will be disbursed.
Before you begin your dream property hunt, make sure to get preapproved for a home loan.