Can I qualify for FHA, USDA or Fannie Mae Homepath?

[Siobhanmairead]

We're currently renting and hoping to purchase a new home soon, this will be our first mortgage. Here is my information:

1. Credit.   My credit scores are FICO Trans: 653 FICO EQ: 655 EX Plus Score: 660. My husband's credit scores are FICO Trans: 590 FICO EQ: 603 EX Plus Score: 610.
2. Credit accounts (mine) Fingerhut limit $600/bal $550, Credit One Bank limit $700/bal $285, Vic Sec limit $650/bal $200, Maurices limit $700/bal $280, GE Wal Mart limit $400/balance $50, GE Amazon limit $650/ bal $300.
3. Credit accounts (husband) Fingerhut limit $1000/bal $100, Credit One Bank limit $300/ bal $0, Capital One limit $300/bal $100
4. Income.  I'll make roughly $40,000 per year, my husband make $30,000
5. Source of income.  Full time employment for both of us
6. Monthly debt payments.  Toyota Motor Credit car payment $420/mo and Student Loan $58/mo
7. Employment. I've only been at my new job 2 months, my last job was in the same industry (government) and I was there for 6 years. My husband has been at his job 2 1/2 years.
8.  Assets/Reserves. $17,000 in Savings
9. Property. Single family home. 3 bedrooms, 2 bathrooms, minimum 1,000 sq. ft.
10. Value.  less than or equal to $200,000
11. Occupancy.  Primary residence.
12. Transaction Type. Purchase.

We do have a few medical collections that were planning to pay off. My question is should we use some of our savings to pay down the cards and pay off all the collections, or should we just apply for a loan and let the bank tell us to pay off the collections, if they require it? Thank you in advance.

[ShanetheMortgageMan]

You mentioned a car & student loan payment, but didn't mention how much your credit card payments were and 6 of them have balances.  Assuming $25/mo each, that'd be another $150/mo in credit card minimum payments.  Either way your debt to income ratio should be fine for a $200k sales price.

Medical collections rarely have to be paid off, so I wouldn't spend any money on those until the underwriter tells you they are needed.  If you pay off your credit card debt you should see a nice bump in your scores, which will qualify you for better interest rates, so if you can spare the money to pay those off then I'd recommend you do.

You also didn't go into any detail on why your scores are low.