yes it is possible to leave your daughter out, due to her "bad" credit.
When determining "how much" house they could afford, ONLY your son-in-laws income will be used though.
Has your daughter ever considered working on getting her credit score improved (e.g. getting incorrect, old and other negative items removed from her report)?
I am working with lots of clients who have the same issue and was able to help them.
Please feel free to contact me at your earliest convenience, if I may be of any service to you.
Lic. Loan Originator