Co-signer for Home Loan

[My2BabiesLexis&Dill]

We are currently working on our credit report. Our credit scores vary from 500-599. But my FIL said he would co-sign for us to get a home. We are currently renting a home for the last 7 years.

I guess what I'm trying to ask the very wise budget board if we would have to clean everything off our credit report before applying for the loan? His dad has excellent credit.

 

[jsmith]

The answer is going to vary according to what kind of loan you are looking at. For a conventional loan ( which requires 20% down) a credit score of less than 600 is going to hurt you enormously in terms of interest if you can qualify at all-and unless your FIL is the primary mortgage holder thats going to be difficult. You are likely to see and interest rate of a point to two points higer than the going rate which will push your payments up. Credit scores under 700 get penalized that way.
If you are doing FHA or some other low down financing it may have less impact but it will lower the $ amount you can qualify for. If you state has first time buy programs that you can qualify for that credit score may have less of an impact-but you will have to do it with out your FIL co -signing since he is not a first time home buyer. Best course would be to clean up the credit score and the debt that got it so low before looking to purchase a home.