“My credit score is low, can I still buy a mobile home?”
It’s probably one of the most asked questions we receive, both in person from potential homebuyers and on our Facebook page. People are stressing about their credit score, checking it constantly, opening credit cards, closing credit cards, asking their friends for advice, and disqualifying themselves from owning a home.
First of all, try to relax. Buying a home is a big step, and not knowing if you will be financed to purchase one can be very stressful, but drastic moves on the part of your credit are not typically helpful.
Credit scores are only one of the ways mortgage companies evaluate your dependability when they review a loan application. And a low credit score will not immediately disqualify you from being approved for a mortgage, though it is likely to change the down payment requirements and interest rate, which might make your mortgage too expensive up front.
But I don’t want to get ahead of myself.
Let’s look at some of the different questions and assumptions made about credit scores.
Your Mobile Home Dealer Doesn’t Know Everything
Typically, you walk into a dealership. An eager and friendly salesman meets you. He or she asks you a few questions. They try to put you at ease. They are eager to have you fill out some paperwork and pull your credit score.
If a dealership wants to pull your credit, politely decline. You do not have to offer up the information or permission they need in order to do this. You should have the price range you are comfortable with already in your mind (see “3 Tips on Budgeting for a Mobile Home Purchase”) and a mobile home dealer does not need your credit score before submitting an application for a pre-approval of that amount to the bank.
Often the common practice of pulling credit prior to even walking buyers through homes is specifically designed to price homes as high as possible. Leave the credit reviewing to the loan officer assigned to your application, and if you can, get prices up front before you reveal anything about your finances.
How Is Credit Calculated?
You credit score is a number generated from several factors gleaned from your credit history.
These factors include:
- Total amount of debt
- Type of debt accounts (credit card, small purchase financing, personal loans, mortgage, leases, medical bills)
- Timeliness of Payments
- Amount of time account has been open
- Percentage of credit being used on an account
There are three main credit bureaus that generate a score, and these can all vary from each other. What’s more, banks financing a mortgage have their own credit reporting systems, and a score you are checking on a free credit checking site can be off more than one hundred points in some cases.
Your credit score can change for a variety of reasons, and sometimes, though something might seem sensible in helping elevate it, you could actually harm your credit.
This is why it is always advisable to submit your loan request to the bank, receive feedback, and then make decisions about your credit.
Credit Score and Debt-to-Income Ratio
Like I mentioned earlier, your credit score is not the only part of your finances that is taken into consideration when you are seeking a home loan. Another factor—sometimes reflected in your credit score and sometimes not—is your debt-to-income ratio.
This means a loan officer is evaluating your income in relation to the amount of debt you currently have. Their job is to ensure that you will be able to successfully make the payments on your mortgage along with that of your current debts.
While a credit score might look good on paper, it will not fool a loan officer. They will view your credit history, income, and monthly expenses as a whole, not just a number.
How Do I Improve my Credit Score?
Everyone wants to know how to improve their credit score. It’s a lot like losing weight though… we know the answer we just want an easier one.
Improving your credit score is all about establishing a proven track record of responsibility. If you have a history of making late payments, start now by making payments on time.
If you have a history of going over your credit limit, start now to pay down accounts that are near the limit.
If you have a history of financing everything you buy, do not open any new accounts and make sure all the others are current.
Credit is like muscle—you don’t use it, you lose it. Do not make the mistake of thinking paying everything off and having zero open lines of credit will improve your score. It might actually hurt it.
And by contrast, do not make the mistake of thinking you need to open five credit cards in order to build your credit.
If you are approved for a loan with good terms and reasonable down payment, the best thing to do is keep your head low and try not to do anything to call attention to your credit. Don’t let any place who does financing touch your credit (appliances, flat screens, furniture) while in the buying process and don’t pay off your car, credit cards, or other accounts in bulk.
Building your credit is all about discipline and consistency. Calculating credit is not an exact science and banks don’t view it as such.
Can the Credit Bureaus Make Mistakes?
Anyone can make a mistake. Because credit bureaus are automatically pooling information from many different sources, there could be an instance when your credit score is incorrectly measured based on someone else’s poor credit choices.
Typically this might happen in a situation where you have a father and son with identical names or someone else with your exact name. This would be a time to submit a dispute with the credit bureau and have the mistake corrected. It is not common, but it can happen.
You Might Think It’s Worse than It Is
The main takeaway I want to leave you with today is this: The only people who should give you specific advice or input on your credit is the bank potentially giving you a loan. They can give you specifics on why you have not been approved, or, have been approved with a high down payment and interest rate.
Remember, banks do want to loan you the money, but not if it will be a high risk of loss for them. Start now to be diligent with building a good credit history, save up your down payment, and know that with time your credit score will reflect those positive changes.
Next week we will talk about the different ways to finance a mobile home and the qualifications each option requires. We would love to hear from you! Please leave us a comment or head on over and follow us on Facebook.