I feel your pain, especially because I was in a similiar position as yours. Your main goal should be to RAISE your FICO score to allow you to obtain a mortgage that is not subprime (you NEED to get above 620, or even 660). The mortgage industry is in a freefall these days with programs changing daily, but your best option in trying to obtain a mortgage is to work from strength (ie, the higher your FICO score, the more options and programs that will become available to you). Keep paying down your credit debt, as that is the best way to riase your FICO score in the quickest possible manner.
On the car issue, yes it helps to have that positive tradeline and that installment loan on your credit report. However, if selling your car will alleviate you of that monthly car payment and auto insurance, plus if your car is worth more than you owe and you can make some money on selling it, I say do it. (So long as you have nearby public transportation and access to a car when needed...use "Flex Cars,", for example). I sold my Acura RSX six months ago, put 5 K. in the bank and paid down some credit card debt and now I rent out my private garage space at my condo (which is 2 blocks frm the metro station). The money I save is now helping me get my FICO scores over 700 and eventually over 720 - 750, which is my goal before I refinance/cash out with my condo I purchased less than a year ago (and it has increased in value almost 100K. since I purchased it). Everyone's situation is different, but I wish you well in your efforts!
