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Thank you all of your advice. I had actually contacted the prof. about the funding aspect. He told me that:
"If we get new funding in your project, you would be funded after 1st year for sure. But, I can't promise funding after 1 year right now since funding situations are very tough in USA these days and it takes long time to get new funding. Therefore, it is your decision to take that risk or not, and you should have a financial backup solution yourself if there is no new funding."
I had actually told him that I am trying to find out alternatives for funding and that I am ready to accept his offer.
Can I drop out with an MS after 2 years in case of lack of funding and then continue when I get funding? Should I tell the prof. at this point of time about my MS/PhD plans (or) will he understand my position if I let him know of this after my 1st year of study at the university? (He is ready to fund me fully for the first year).
Please reply soon.
Truly,
Chaitanya