First time buyer needs help re mortgages.

[toptramp]

My nan died last year and left me with a lump sum. it's not a huge amount but I think (or rather hope) it's enough to put down on a deposit for a modest house.

Can anyone please talk me through the various types of mortgages or at least how a mortgage works?

I am a single mum and I have a job. My wages cover my rent which is £625 per month but there is not much left over. I do get topped up with housing benefit. I will loose this if I get a mortgage. I am applying for a better paid job soon but it will be covering maternity leave and I will have to look for a new job at the end of it but it will be a step up on the career ladder too. I should just sit on this lump sum until I have a better paid job shouldn't I? I am clueless.

[CogitoErgoSometimes]

I'll give it a try. :)

A mortgage is a secured loan. This means that you're borrowing money against a secure asset ie. a house. (An unsecured loan is something like a credit card.) It is important to understand that at the outset because your home is at risk if you fail to keep up repayments. So a safe, steady job will reduce that risk considerably. If I were you, putting your lump sum somewhere safe where it can earn interest as you get firmly into that better paid job would be exactly what I would do. There is nothing like owning your own home but it is probably the most expensive thing you'll ever buy so it's worth taking your time over the decision.

The most common type of mortgage is a repayment one. You borrow a capital amount big enough to buy the house over a period of say 25 years. The lender (building society or bank usually) charges you interest (fixed or variable) on this amount and you spend the next 25 years paying back some interest and some capital each month. Eventually, you own the property outright.

How much you can borrow depends on how much disposable income you have & the policy of your lender. The higher your income, the more you will generally be offered. However, you have to judge whether you personally can afford the monthly payments alongside other costs such as council tax, utility bills, insurance and so forth. There are various online mortgage calculators that let you put in the total amount you're borrowing, the interest rate and the term and will work out roughly how much that will cost you each month. Example 1 .. Example 2 ..

There are many mortgage products on the market offering different deals and different conditions and it can be pretty daunting sorting through them all to find the best one for you. I strongly recommend that you find an Independent Mortgage Broker or Advisor to help you with this. Independent advisers are not tied to any financial institution whereas if you walk into your local building society, they can only recommend their own products.

Hope that helps. Good luck