Young happy couple holding keys from their new home

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.

I’m here to bring those folks, and anyone else wondering the same thing, some good news: There is more to getting a home loan than your credit score.

Sure, favorable credit might make the process a little easier, but a low credit score does not automatically disqualify you from getting approved for a loan and becoming 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 (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

Obvious credit score detractors would be late payments, delinquent accounts, exceeding credit limit, or foreclosure. While credit score boosters would be 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 does often line up with the reality of a home buyer’s financial situation.

An overwhelming amount of debt in relation to income would show the lender that a borrower could not both keep making payments on all their credit accounts and afford a home mortgage.

Many delinquent (or past due) credit accounts would indicate mismanagement of finances and, again, show a lender that a borrower may not be able to afford their home mortgage.

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 scores as low as 500. 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.

Loan terms are the conditions a lender puts on a loan such as down payment amount, interest rate, and the loan duration.

A lender may ask for 10% or even up to 35% in down payment to feel that a borrow with a lower credit score has more personal investment in the loan. Additionally, the interest rate (the cost of the loan per month) may be higher to ensure the lender will make some return on their investment in the event of foreclosure.

For some, these terms may not be feasible or ideal, and building a more favorable credit history might be a better option.

WAIT! Don’t think you should try to fix your credit before applying for a loan. Oftentimes, a lender can 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.

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 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!