Can I Buy a Mobile Home with Bad Credit?
Buying a Mobile Home with Bad Credit – Getting Approved with a Low Credit Score
Every day we receive questions about credit scores from hopeful home buyers worried their bad credit will ruin their chances of a home loan.
Before we get anywhere, you need to know there is almost always a way to buy a home, even with bad credit, BUT you will always be in a better position to buy a home with good credit.
Let’s work through some information to make you a smarter buyer.
There is More to Getting a Home Loan than Your Credit Score
First off, we want you to hear some good news: There is more to getting a home loan than your credit score.
Yes, favorable credit might make the process a little easier, and give you a loan with more favorable “terms,” but a low credit score does not automatically disqualify you from getting approved for a loan to become a homeowner.
So, what role does your credit score play in getting a loan? Let’s start by talking a little bit about what a credit score represents.
What Does a Credit Score Represent?
A credit score is a number generated from activities in your credit history. Some of these activities include:
- Total amount of debt
- Type of debt accounts (such as credit card, small purchase financing, personal loans, mortgage, leases, or medical bills)
- Timeliness of Payments
- Amount of time accounts have been open
- Percentage of credit being used on an account
Obvious things that will reduce your credit score are late payments, delinquent accounts, going beyond your credit limit, or foreclosure. On the other end, credit score boosters include timely payments and long-held accounts without default.
It’s important to note that while a credit score is a useful and well-known measurement for banks, that three-digit number does not give a full picture of someone’s ability to pay back a loan and banks don’t expect it to.
How Low is Too Low a Credit Score?
While credit is not the only factor in getting approved for a home loan, it is used to help determine the reality of a home buyer’s financial situation and how risky it would be to loan a specific person money.
An overwhelming amount of debt in relation to income would show the lender that a borrower may have a hard time keeping up with all of their debt payments.
Many delinquent (or past due) credit accounts would indicate a borrower is not paying back other lenders, which obviously makes the new lender a little nervous about the borrower. Why should they expect a borrower would treat them any different than other lenders?
It is not the credit score itself in these cases that make a loan more difficult to be approved for, but the behaviors that contributed to the score.
Many people are surprised to learn that we work with banks offering programs for buyers with FICO scores as low as 500. As of 2020, only about 16% of consumers have score lower than 580, so we can get most folks a loan. While home buyers are fretting about their score, it’s easy to forget that banks actually want to loan money, and if they can make your loan happen, they will.
Loan Terms for a Low Credit Score
Credit scores do matter, but instead of being the difference between a loan approval or denial, your credit history typically affects what terms a loan will come with.
What are loan terms? We are glad you asked! Loan terms are the conditions a lender puts on a loan such as how big the minimum down payment amount needs to be, how high or low the interest rate will be, and the length of time you have to pay back the loan.
A lender may ask for 5%, 10%, or even up to 35% down payment to feel like they will be covered if the lender stops paying. Two things are going on here. One thing is the higher the down payment, the more a borrower is personally invested in the loan.
You will also see higher interest rates on loans the higher the credit risk a person is, because a lender will want to feel the risk of lending to a borrower is worthwhile. The higher the interest rate, the higher the risk a lender is willing to take.
The problem for us is the higher the interest, the higher the monthly loan payments and the higher the overall interest paid over the life of the loan.
Some folks can make these terms work and some can’t, but the key point for you is, the better your credit score, the more likely you will have favorable terms meaning lower minimum down payments and lower interest paid to the bank.
Should I Fix My Credit Score Before Shopping for a Home?
That is a great question. It depends on your current situation.
If you are making a large rent payment every month, it is possible you could lower your monthly payments, even with a higher interest rate on your loan. If that is the case, you may want to shop for a home, and refinance when your credit score improves.
If you have another kid on the way and you are out of room where you currently live, you may want to still look at getting a mobile home before you improve your credit.
If you are not in a rush to move and have $0 for a down payment, you may want to investigate how to improve your credit score first.
If you have no or little credit history and a small down payment, you may want to give yourself some more time to build your (good) credit history.
Do you want to know a secret? Lenders want to give you a loan and if you apply but find the terms won’t work for you, they will often give you very specific reasoning about what in your credit history is affecting your terms. It could be you need to focus on paying down a certain debt or that a certain account needs to be brought current.
Or it could be there just isn’t enough credit history and it’s as simple as continuing on as normal for a few months and reapplying later.
Repairing Your Credit Score
If you aren’t convinced applying for a home loan with a low credit score is possible, or you already have applied and know you have some work to do on your credit history, then you should talk to our friends over at the Next Step SmartMH program.
This is a non-profit organization specializing in credit counseling and home buying resources. They offer free, no-obligation advice to move you and your family closer to your dreams of home ownership. SmartMH also provides credit repair services at a fraction of what other credit repair companies cost.
Oh, one more thing about Next Step. They also help connect people with down payment assistance to help you get that down payment you need in order to buy your dream home.
We do recommend a lot of folks to Next Step. Credit is a complicated matter and experienced, professional assistance is invaluable (especially when it’s free!)
The Bottom Line: Bad Credit Isn’t Everything
If you take away anything from this article today, let it be this: A bad credit score does not mean you cannot get a home loan.
Even though your credit score does play a role in determining the loan terms a bank or lender will offer, rarely does a low score result in outright denial.
And if you decide you would like to work on building your credit and reapply for better loan terms later, there are resources available to get you on the right path and maximize your efforts.
Don’t let your credit score scare you away from becoming a homeowner any longer, our team would love to help you get started today!