Repairing Credit in order to obtain a mortgage
To obtain a mortgage, you have to first ask yourself if you are ready for the responsibilities of home ownership, and further, since you've experience credit problems in the past, you have to be sure you are able to take on a major financial responsibility for the next 30 years of your life. It's not like a car loan that you can pay-off in about 5 years, and once you don't like the car, you can sell it and get another one. A piece of real estate is not so easily sold and purchased. If you feel you want to own, rather than rent, congratulations! However, if you simply need a bigger apartment, because of the baby, make sure if a bigger apartment alone will not satisfy your needs.
First of all, if you marry your partner, your income and her income combined will help you get financially qualified. By not being married, your income and hers can not be considered equally, as there is no marriage in place. Secondly, consider what is known as your debt to income ratio before and after borrowing. Generally, 36% is a good ratio, although some creditors will lend up to 40%. Generally, think of the price of the house as being 3 times your combined gross income, but if you stretch it, it can be as high as 3.5 times your income. So for example, if your combined income is $50,000 per year, your housing budget is about $150,000.00. If your income is $90,000 per year, your housing budget is about $270,000 per year, and so forth. This is a general rule of thumb.
Thirdly, if your credit score is not yet strong enough to qualify you consider getting a co-signer, such as a parent to put together on the loan with you. All 3 of you will be on the deed: you, your wife and your parent. The person with the horrible credit score doesn't have to be on the mortgage, just on the deed. You're not buying the house in somebody else's name, because that would be fraud, you're simply having somebody co-sign.
If the person that is the co-signer already has a home, and it shows up on their credit report, then you need to come up with 20% down, as this would be considered an investment property, not an owner occupied property. If owner occupied, you can get FHA financing to the tune of 3.5% to 5% overall, but non-owner occupied, you are facing 20% down. Another possibility is to have a parent or relative help you get the mortgage, and use the lease-option-to buy clause, where you are a tenant of the property and a portion of the rent payment goes toward building your downpayment and as your credit and downpayment improves you pay-off your relative in full. That way, your relative doesn't have to go into foreclosure if you can't keep your end of the bargain, and it's a simple eviction, rather than foreclosure. This makes it fair to your relative lending you their credit and the downpayment, and at the same time, helps you get into a better living situation than you currently are in.
Your best bet is:
a) Lease option-to-buy from an existing owner
b) Lease option-to-buy from a parent or relative that is willing to help you.
c) Waiting, until you have a bigger downpayment and better finances.
d) Seller financing, with a huge 30% downpayment or better on your part.
e) Getting a cosigner.
f) Getting a 2 family or 3 family home and having the rental income help you pay the mortgage.
Good luck Dad!