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Overheads On Applying A Home Loan

Buying a house is a herculean task. One needs to plan the funds for the house. Besides the deal amount there are other miscellenous expenses that one comes to know only while going through the process. However, be a wise finacial planner and always estimate the overhead cost and arrange for the funds in advance to suffice the expected bills and expenditure. In case you need to get a fair idea of the costs one gets to pay while applying for a new home loan and getting it processed, continue reading.

Primarily, the home loan overheads include three things – loan discount points, closing costs and prepaid items. So, if you are first time applying for a loan these terms may sound arabic to you. Nothing to worry! These are simple banking terms. And, there is hardly any chance that your seller or construction company will be paying even a part of these expenses. Well! regardless of you sharing these costs with any of the party, these items are a part of your buying costs for the new home. So, instead of ignoring them till the eleventh hour, its better to plan ahead.

Closing costs refers a broad category of the actual expenses which a lender incurs while applying for a home loan. This closing costs, related to a loan application processing, includes the expense of generating the updated credit reports of the applicants; fees related to the house like some appraisal of the property; payment made to the lender for processing the application like a loan origination fee.

The next term is ‘loan discount points’. It can be better called a prepaid interest. Each discount point equals to 1 per cent of the amount being borrowed as the loan. This is paid in cash at the time of closing to the lender (say your bank) as an interest. On doing so, the borrower gets Discount Points that helps to lower the stated interest rate on the loan.

There are also some prepaid items. In some cases the home lenders may ask you to open an Escrow Account. It is similar to a savings account but held by the lender. Each month the borrower deposits an amount of money for property taxes and insurnace of the house owner in addition to your loan payment. Maybe in some cases you have to pay the for the insurance policy for the first year through your pocket.

Date added: 2009-05-28 12:23:04 Hits: 20