Mortgage BasicsThe mortgage questions we are asked are often based upon mortgage terminology. We shall start with some that relate to simple terms that are often misunderstood, and then progress to those that can really be confusing.

Mortgage Questions:  What is Pre-approval?

When you are looking for a new home, it makes sense to know how much of a mortgage you can raise.  You can then make an offer knowing that the funds are available should your offer be accepted.  Many mortgage questions we receive relate to the benefit of knowing the mortgage you are likely to receive before making an offer on a home.

Pre-approval, sometimes referred to as prequalification, involves a mortgage company checking your personal details before making a mortgage offer. These details will be your employment, income, banking details and your credit score (FICO score.) Fundamentally, your mortgage company will carry out all the checks they would have if you had already chosen your new home.

Rather than this happening after house hunting, you get it done in advance.  You can then avoid checking out real estate priced higher than the mortgage you will be allowed – plus your deposit of course.  You know the maximum mortgage you will get and know the deposit you can afford to pay – so you know exactly the maximum you can offer for the property.

Don’t offer this maximum immediately, because then you have no haggling ammunition. Offer a realistic sum, but maybe 75% – 80% of what can pay. You might be lucky or you might have to bump up to 100%, but at least you know the situation and won’t be disappointed by a mortgage refusal.

Question:  How do I Find my FICO Score?

Your FICO score (Fair Isaac Corporation), also known as your credit score, is a numerical indication of your credit worthiness at a specific time. It takes many factors into account. Lenders will check your FICO score before offering you a loan. A mortgage is a loan to buy real estate.

There are three major credit reference agencies, each of which holds their own credit records.  Each also calculates its own credit score, and each must provide you with at least one free copy of your credit report each year on demand. Credit scores are different – they are based upon your credit report, but not exclusively so.

A FICO score is not the same as a credit score.  The three credit agencies are Equifax, Experian and TransUnion. And each will calculate its own credit score. You must pay to receive these – they are not included in your credit report.

The only true FICO scores are sold to consumers by and and these are what are used by most mortgage companies in their decision. You must approach one of these sites and pay to see your true FICO score.  Your Experian or TransUnion score will be useful. However, Experian has severed connections with MyFICO, and TransUnion uses its own calculations now. Most lenders seek FICO scores rather than ‘credit scores’ – it might be a historical thing or habit, but that’s the fact of the matter.

Question:  What Does my Free Credit Report Tell Me?

Some mortgage questions relate to the difference between mortgage reports and FICO scores. You are allowed one free credit report each year from the credit reference agencies Equifax, Experian and TransUnion. This is not your credit score which must be paid for separately.  Of these three, only Equifax can provide you with a genuine FICO Score.

Your credit report will detail how much credit you have and with whom.  It will detail whether or not your payments are up to date, and if not, how much you are behind on each. Details of the type of loan or credit will be revealed – credit cards, store cards, car loans, rolling credit, secured loans, and so on.  It will also state what credit searches have been carried out in your name – the more of these, the lower your credit rating. Included can be all credit from your postal address – partners, children and tenants.