19 and Totally New at Buying a House, Can someone explain it to me So That i can Understand ?

Question

Im 19 and want to buy a house next year.

The only things i know are an FHA loan and fixed rate.

I make 20,000 a year at a stable job with benefits and paid vacation.

I want to buy a house that costs $55,900. If I pay 20% of that which is $11,180. I just started building my credit a month ago so it im hoping after one year of having a credit card will make me have good credit. Hopefully i can get a interest rate at 6.5%, which would make my monthly payments of the house around $285.

Question 1. What does it mean for payments toward principal and payments toward the house?

Question 2. What is an Escrow account.

Question 3. If i have to pay property tax, would i have to pay that every year for the rest of the time intill i pay off the house?

Question 4. What are surveys? What are the other things i need to know that i will have to be paying towards the house?

My plan is to save 1 year of work (20,000) and then put my 20% down =11,180, Then im going to put the other 9,000 down too. ( would that help me out if put more than 20% down? what would it do?

I know of home owners insurance and is there anything else?

Thank you very much

Answer 1

Okay, I'm 25, and I just bought my first house and learned this stuff, so let me give it a shot-

First off, if you can find a house for $55,900 that's in liveable condition - wow.  I'm curious where you live, and how much of the fixup work you plan to do yourself.  Because paying for repairs can be just as expensive as the house -- maybe more.

The credit card will build your credit, but make sure you are using it every month, and paying off the balance in full every month.  Also, before you apply for your mortgage, pay off your balance so that it will be at $0 when they pull your credit file.

Q1:  In a mortgage there is principal + interest payments.  The bank will ammoritize your loan payments, so that it will be the same payment each month throughout the term of the loan (typically 30 yrs).  However, when you breakdown your monthly payment, you will see that each month you are paying a different amount towards principal and a different amount towards interest.  When you first get your loan, you're going to be paying tons more interest than you are paying towards principal.  That's how the banks make the majority of their money.

Q2:  I think an escrow account is considered a 3rd party account that you pay your property taxes and/or homeowners insurance to, and the 3rd party makes your taxes/insurance payments on your behalf.  Basically, the bank does not want liens on your house, due to your failure to pay your property taxes.  So typically they will require you to pay your property taxes into the escrow account, so they can make sure that its getting paid

Q3:  Property tax is forever.  For as long as you own the house, you'll be paying property tax

Q4:  I don't know what a survey is.  You need to be aware that if you're getting a mortgage, they will probably require homeowner's insurance.  That will most likely be included in your monthly checks to the bank, and placed in an escrow account.  The same goes for property taxes

The more money you pay towards downpayment, and the more money you pay towards the principal, the less money you will be paying in interest.  Usually it's the best thing to pay as little interest as possible.  However, one great thing about paying interest on a mortgage loan, is that you can declare it on your taxes.  So you can either change your number of allowances on your W4 to get larger net paychecks, or you get a bigger refund each year.  

Hope I helped!

**edit:  

You don't seem to understand the difference of principal and interest payments, so let me try to give you an example.  (the numbers i'm using are just for example, and are not real figures.  If you want to get real figures, use one of the simple ammoritization calculators)

I have a loan for $80,000, ammoritized over 30 yrs at 5.75% interest.  My monthly payment (principal + interest) over the entire 30 year period is $480/mo.  However the ammoritization schedule will look something like this:

Month           Principal           Interest          Total

Sep/08         $80                    $400              $480

Oct/08          $82                    $398              $480

Jan/2012     $150                  $330              $480

Sep/2035    $400                  $80                $480

So, your monthly payments are always the same for a fixed rate loan.  However, you need to understand that the bank applies your monthly payments in two categories: principal and interest.  You will pay more interest at the beginning of the loan than you will pay at the end of the loan, which makes sense if you think about it.  Each month your principal balance gets a little bit lower, so the interest charged also gets a little bit lower.  At the start of your loan, your principal balance is the highest it will ever be, and you will be paying the most interest.

Answer 2

because things change from area to area you need to talk to a real estate professional in your area. but property taxes are paid forever till you move to a new house or die. surveys are to make sure your home meets the requirements for homes in your area you can choose to opt out of them most the time unless your loan specifically says you must have them done. also if you have had any bills in your name for the period of a year or more like cell phone car insurance whatever normally they can get you approved for a home even without a steady credit score and ask about no money down home loans call GMAC they are a really good company to go through and if they can't approve you they will tell you what you need to do to get approved and/or give you other lenders that maybe able to approve you. but again so much changes from area to area that you need to talk to a real estate professional in your area don't worry they work on commission so you won't pay them anything to talk to them about buying a home.