The housing market has been pretty overcast since the bubble burst; but you know the bit about silver lining: Interest rates have dropped drastically (and recently risen slightly), and President Obama’s stimulus bill has opened up some options for home buyers.

Here are some terms and changes you’ll want to know about if you’re pondering buying this year:

What does it mean when “the prime lending rate is low”?

Time for an economics lesson! The Federal Open Market Committee (part of the Federal Reserve) is responsible for maintaining a healthy financial climate in the United States. When the FOMC sits down and decides that an increase or decrease in the interest rate is best for the stability of an undulating economy, the federal funds rate changes.

While the federal funds rate doesn’t directly change the prime lending rate, it does affect how banks borrow from each other, which trickles down to borrowers like you and me. Regardless of bank trading, however, the trend is that prime is the FFR plus three. The current FFR is 0.25, while the current prime rate as published by the Wall Street Journal is 3.25.

The prime rate is low now, as a means to bind and support our limping economy; but it doesn’t mean you’ll automatically get a 3.25 percent interest rate. The final interest rate is determined by the bank, based on prime, your down-payment, and the type of mortgage you choose and the auction rates of Treasury bonds (these babies are partly responsible for the recent increase in mortgage rates).

Help from the stimulus bill

Courtesy of the American Recovery and Reinvestment Act of 2009, you can claim up to $8,000 back as tax credit if you’re a first time home buyer closing by Dec. 1, 2009. The amount you can claim is 10 percent of the purchase price, and depends on some stipulations. For example, you have to live in the home for at least three years after purchase, and you cannot have owned a home in the three years previous.

The biggest difference between this credit and the one offered in 2008 is that buyers have to pay back the 2008 tax credit (of up to $7,500) over the course of 15 years. The stimulus bill of 2009 offers the money with no strings attached, granted you meet the requirements. Another twist: the 2009 first-time buyer credit may be getting even better. There are proposed amendments that would increase the maximum tax credit from $8,000 to $15,000, as well as doing away with the current 2009 Act’s income limits.

I’ll take that tax credit now

As of May 29, 2009 the U.S. Department of Housing and Urban Development (HUD) has successfully won a campaign to allow buyers to borrow against the 2009 tax credit, instead of waiting for it until the April 15, 2010 returns are processed. First-timers (and those buying for the first time in three years) will be able to use the amount they are eligible for as a down payment, which can help them get a better interest rate. The tax credit amount can also be used to cover closing costs.

There are some requirements, of course. The two major ones are that eligible mortgages have to be insured by the Federal Housing Administration, and buyers have to pay down at least 3.5 percent of the purchase price, before applying the “monetized” tax credit to the down payment.