Can a co-signer help me get a mortgage with bad credit?

By Gina Pogol
Mortgage Credit Problems Columnist

Dear Gina, I opened a few credit card accounts in college and paid them all late. So the credit card companies closed my accounts. Now I have bad credit. It's been a couple of years since I checked my credit score, but it was only 558 at the time. I want to buy a house and my mom said she'd cosign. She has good credit. Can I get a mortgage this way? - John, San Diego, Calif.

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Hi John,

First, I'll give you the bad news. In general, co-signers help when a person has what is called a "thin file," meaning he or she doesn't have much credit history, has a short job history or needs more income to qualify. While a co-signer can improve the chances of these kinds of borderline applicants, lenders who won't give you a mortgage because of your bad credit won't give you a mortgage just because you have a good-credit co-signer.

The good news is you have options. First, there are loans for people with bad credit scores. For example, if you put 10 percent down, the Federal Housing Administration (FHA) allows bad credit mortgage loans for scores as low as 500.

Second, your mom might qualify to buy the home as a non-occupant under the FHA "kiddie condo" program. Often used by parents buying housing for kids attending college, the kiddie condo program requires a 3.5 percent down payment. You could always come up with the down payment and arrange with your mom to make her house payments, but she would need to qualify for the loan on her own.

Third, your credit now may not be "bad" so much as insufficient to qualify for a mortgage. You may be able to get your credit score over the 580 threshold in six to 12 months if you establish a good payment history. See if you can get a new credit card account, even if it is a secured credit card. Use the new credit card for small purchases. Pay it in full each month. This will help you improve your history.

Finally, make regular transfers from your checking account into a savings account for your new home. This series of regular transfers not only adds to your savings and makes you financially healthier but it shows potential lenders that you are disciplined enough to save money regularly. By doing all these things, you should be able to buy a home in the near future, with or without your mom's help.

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