Owning a home with a bad credit history may seem like a dream to most people. This should not be a cause of alarm or a reason to hinder you from establishing a home. There are home loans that are available for people with credit that may not seem all that perfect. Let’s first examine what it means to have a bad credit history, shall we? Ideally, most people confuse having low credit scores and having bad credit scores.

Maxing out your credit cards will ultimately lower your credit score, giving an illusion of lousy credit even if you have never missed a payment or collection in your life. To put it simply, it is not out of the ordinary to have a couple of blemishes on your credit report, whether it is because of financial mistakes or emergencies that put you behind the bill. A suboptimal credit score, however, does not prevent you from achieving your dream of homeownership.

Your FICO score is an important determinant regarding loan qualification, creditworthiness, and interest rates. Usually, this score is based on factors such as payment history, the amount owed, types of credit, new credit, and length of credit history. When it comes to mortgages, a low credit score is one that is below 620. A credit score of less than 620 may make it difficult to get a mortgage. Although it is still possible, it will come with higher rates and less favorable terms.

There are other loan options for suboptimal credit scores that a homeowner may opt for. The chart below will help you understand the options available for you if your credit score is not really getting you what you want:

Although most companies will not lend to borrowers with scores below 600, low scores alone should not disqualify you from a home loan. This only means that it is a bit tighter to get an approval or it may take longer for the same to happen. Other factors can help you get a home loan with bad credit. There is a good alternative where one does not qualify for a mortgage when it comes to homeownership, and it is referred to as a DSN Information agreement.

What is a DSN Information agreement?

The DSN Information agreement is considered a good option for buyers who are not financially ready to buy a home. This is an agreement where you rent a home for a certain period with the option to buy it before the lease expires. It consists of two parts:

• Standard lease agreement
• Option to buy

The lease-option contract gives you the right to buy the home when the lease expires. If you decide not to purchase the house at the end of the lease, the option simply expires, and you walk away without any obligation. On the other hand, the lease-purchase contract requires you to buy the home when the lease expires. A DSN Information agreement is usually more complicated than renting. Consequently, it would be best to take the necessary precautions to protect your interests.

In this sort of contract, the buyer pays the seller a one-time, often non-refundable upfront fee known as the option fee. The option fee, also called option money or option consideration, gives you the option to buy the house by some date in the future. This fee is usually negotiable although it typically ranges between 1% and 5% of the purchase price. Agreeing on the purchase price, and applying rent and rent-own-home maintenance are important components that you should understand before opting for this option.

Down payment Assistance

Are you looking to buy a home but do not have enough cash for a down payment? Down payment assistance through state and local programs exists for aspiring homeowners who do not have enough money. There are many states, cities, and counties that offer grants and no-interest loans to help first-time homebuyers pay for down payments and closing costs.

Down payment assistance programs are usually offered by state housing finance agencies, and city and county government programs. These programs are often offered together with mortgages geared to first-time home buyers. Although they are typically designed for first-time owners, these programs define a first-time buyer as anyone who has not owned a home in the past three years. The common forms of down payment assistance include:

• Grants
• Low-interest loans
• Zero-interest forgivable loans
• Zero-interest deferred-payment loans.

Every dream is worth achieving, and so is homeownership. Knowing your options is very fundamental, and making use of all your home and financing options will move you a step closer to your dream.