10 Terms Every First Time Home Buyer and their REALTOR should know

By
Real Estate Broker/Owner with Bosshardt Realty Services, Inc.

TOP 10 Terms Every First Time Home Buyer and their REALTOR Should Know.

 1. Who is a first time home buyer?

Anyone who is a US Citizen that files taxes and has not owned a home within the past three years qualifies as a first time home buyer. Some non US citizens may qualify as first time home buyers.

2. State Housing Initiatives Partnership commonly known as SHIP

SHIP is state program sponsored by the Florida Housing Finance Coalition provides down payment assistance for first time home buyers who qualify. The less you make the more you will qualify for. The money is given to the local municipalities, so where the property is located will determine the rules and the source of funding. The City of Gainesville SHIP department doesn't have quite as nice a website. Alachua County ‘s Website is very informative I would recommend starting or whatever municipality you plan to buy in like Marion County, The City of Sarasota or Ocala.

3. FHFC I mentioned this before. This website is a much underutilized resource, not only for first time home buyers but buyer education in general. They have a guide to foreclosure prevention and a statewide affordable housing search.

4. Annual Percentage Rate or APR. This number is derived by a mathematical formula that calculates the fees you pay for your loan and amortizes it back into your interest rate. Don't shop Interest rates, shop APR's. Someone might quote you a low rate, but have high fees. The APR is the best indicator of the loan cost and is best used for price comparison.

5. Bond Money. That's government money used to buy down the Annual Percentage Rate which makes your payment lower! When I was selling real estate the lenders only knew who had bond money when they got it, and so the realtor and buyer only knew if they knew the lender. Now days in Florida there is First time home buyer wizard. It's sort of like a calculator. You put in where you live and how many people are in your family and it tells you all about Bond money and SHIP money in your area.

6. FHA Mortgage. This is the mortgage you will most likely get. It's a government insured mortgage and in this mortgage much better suited to first time home buyers then mortgages not insured by the government called Conventional mortgages. Right now FHA still allows buyers to put down as little as 3% down payments.  You get these loans from a FHA approved lender. Which is most banks and brokers, just make sure you ask if they are an FHA lender.

7. PMI or private mortgage insurance is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80% of their new home's value. In other words, buyers with less than a 20% down payment are normally required to pay PMI. PMI will be paid by you monthly and it will be added into your Monthly Mortgage Payment. MMI for FHA Loans is a little different in that you have to pay an upfront fee as well. The fee is now scalable based on your credit score. It used to be fixed at 1.5% of the loan amount, but can be financed into the loan. I hear rumors that soon all mortgages will charge up front.

8. Escrow this one actually has two uses. First is for the Escrow Deposit you will put down when you go to contract sometimes referred to as a Binder. This money is placed in someone's trust account. Be wary of builder contracts that allow them to use your deposit towards construction. Secondly, your monthly payment will have an "Escrow" account. Your payment includes your Principal, Interest, Property Taxes and Insurance or (PITI). It doesn't include your utilities, cable, and phone bill.

9. Housing Affordability index. This is a guide put out by the National Association of Realtors (NAR). You don't really need to know this or look at it, but what you do need to ask yourself is what your personal affordability index is. Just because you are qualified up to a certain number doesn't mean you have to spend that much. Figure out what monthly payment (PITI) you're comfortable with and remember you will still have to pay for your cars, insurance, travel, utilities, groceries, TV, Cell Phones, Childcare, and Life Insurance and so on and so forth. Whatever you're comfortable with.

10. $7500 Tax Credit. That's right you get a $7500 tax credit if you close before July 1, 2009. For more info I ran across a pretty good article posted by Fred Chamberlin. This is a federal credit so the same rules apply.

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Rainer
172,065
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Thanks Aaron for adding my link. This is some very good information. Got a brother that lives in Ocala, btw.

Nov 21, 2008 01:48 AM #1
Rainmaker
76,324
Randall Schrader
Competitive Insurance of Dundee - Dundee, FL

Since you say FHA is the path for most newbies, you should explain the FHA MI and not PMI.

Nov 21, 2008 05:46 AM #2
Rainer
7,591
Aaron Bosshardt
Bosshardt Realty Services, Inc. - Gainesville, FL

Randall thats a great catch and point! I've heard rumors that all Conventional mortgages will soon be charging the upfront MI.

Nov 21, 2008 05:55 AM #3
Rainmaker
76,324
Randall Schrader
Competitive Insurance of Dundee - Dundee, FL

FHA MI is currently 1.5% of the loan amount up-front and financed into the loan amount.  So, a borrower here would have his loan increased $1,500 on a $100,000 loan.  Then, each month the borrower would be required to pay .50 (multiply the loan amount by .0005) toward a monthly mortgage insurance policy.  In my $100,000 loan example, the mortgage insurance premium is only $50/month.

Comparing this to a conventional PMI payment will show a drastic savings each month.  And, if you refinance or sell your home within the first five years, you can likely get a chunk of the pre-paid MI back.

Nov 21, 2008 08:46 AM #4
Rainer
172,065
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

OK, not trying to hijack this thread, but Randall, you have a couple of mistakes. First, FHA UFMIP is 1.75% and if you refinance to anything but and FHA loan, there is no refund of the MIP. The change in the amount of MIP went into effect Oct. 1. It hasn't been refundable for a couple of years.

Nov 22, 2008 02:34 AM #5
Rainer
7,591
Aaron Bosshardt
Bosshardt Realty Services, Inc. - Gainesville, FL

Fred -

Check the comments I inserted about the MMI, they came straight from a local FHA underwriter. They told me the premium is now scalable. Or that it can be more or less then the old 1.5% based on your credit score.

I think the topic deserves to be addressed independently somewhere. Its gonna have to be done by a pretty talented blogger or writter to keep the average readers attention and communicate the new formula. I looked at it at HUD's website and lost interest pretty quickly!!

Nov 22, 2008 03:08 AM #6
Rainer
172,065
Fred Chamberlin
Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA
Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Again, I am sorry Randall, but here is the quote from HUD's FHA website about the change in UFMIP that took place in October:

The Housing and Economic Recovery Act of 2008 provides for a one-year moratorium on the implementation of FHA's risk-based premiums beginning October 1, 2008. Consequently, effective with new FHA case number assignments on or after that date, FHA will no longer base its mortgage insurance premiums on a combination of credit bureau score and loan-to-value ratio.

For all loans for which a case number is assigned on or after October 1, 2008, FHA will charge an upfront premium in an amount equal to the following percentages of the mortgage:

· Purchase Money Mortgages and Full-Credit Qualifying Refinances = 1.75 Percent

 · Streamline Refinances (all types) = 1.50 Percent

• FHASecure (Delinquent Mortgagors) = 3.00 Percent.

Additionally, from the FHA Homeowners Fact Sheet:

For FHA-insured loans endorsed on or after December 8, 2004, no refund is due the homeowner unless they refinanced to a new FHA-insured loan, and no refund is due these homeowners after the third year of insurance.

So, if Bosshardt checked with their local FHA underwriter, they might think about getting a new underwriter. Formula is pretty simple, it was the one in effect up until Oct. 1 that was confusing.

 

Nov 23, 2008 03:38 PM #7
Rainmaker
76,324
Randall Schrader
Competitive Insurance of Dundee - Dundee, FL

I to am thankful for not having to deal with any seriors problems this year.  Thank God!

Nov 27, 2008 12:29 PM #8
Rainmaker
1,080,029
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Interesting post and thanks for the websites. I am working with a SHIP buyer, so I want to see about going on that web site. Also, if you go through the SHIP program, can you get the $7500 tax credit?

Nov 27, 2008 01:41 PM #9
Rainer
7,591
Aaron Bosshardt
Bosshardt Realty Services, Inc. - Gainesville, FL

Sharon,

 Yes your buyer can get ship money and the federal tax credit.

AB

Nov 27, 2008 02:08 PM #10
Anonymous
Amy

Aaron,

I am trying to buy a house and read here that you can get both the SHIP program and the tax credit. Where did you find this information. I have been hearing mixed answers and really would like to know if the new revised creidt willl also allow the same.

Feb 12, 2009 07:57 AM #11
Rainer
7,591
Aaron Bosshardt
Bosshardt Realty Services, Inc. - Gainesville, FL

Amy,

Thats a great question. My understanding is you could get both. Here is the language from the IRS.

Q. Who cannot take the credit?

A. If any of the following describe you, you cannot take the credit, even if you buy a main home:

  • Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
  • You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
  • You stop using your home as your main home.
  • You sell your home before the end of the year.
  • You are a nonresident alien.
  • You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
  • Your home financing comes from tax-exempt mortgage revenue bonds.
  • You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.

I believe "Your home financing comes from tax-exempt mortgage revenue bonds." refers to bond money. However, I'm not an expert on mortgages nor accounting. Also remember the tax credit is 10% of the purchase price up to $7500. Of course that may all change with the new bill.  But you cannot get bond money and the tax credit.

Feb 12, 2009 08:39 AM #12
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