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.