need help--low scores/getting approved for mortgage

[Anonymous]

okay here's some background. 

DH and i have been trying to buy a house.  we are working really, really hard on getting our credit straight again (both made dumb mistakes when we were younger.)  my grandmother recently passed away and there is a bunch of money that i've never touched that was in my name (and some i was a beneficiary to)  we didnt think that we would be able to afford to buy her house (which is PERFECT for dh and i..perfect schools, side street, huge yard, etc.) my uncle who is the executor of the estate said that he would sell it to us for $153,000.  that is a STEAL for the town its in. 

the house would already have equity because it is worth around $200,000 or so.  we would be able to put down atleast 20%.  our scores are not that great. 

DH-  EQ516 Trans561 Ex536

Me-  EQ477  Trans565  Ex493

needs work, i know.  DH is going to pay off his student loan on monday (which should help between score and DTI, i think)  he is paying down one of his CCs, etc.  we are going to be getting a lot taken care of in the next week or so. i am going to take care of two of my CCs, too.

anyways.  i talked breifly to a person who works with both FHA and MassHousing (massachusetts lower-income housing help) and she said that since the house is going to have equity already, and we can put down atleast 20%, we might be able to get away with our scores being low.

anyone have experience with this??  anyone find a lender who gets you approved in the lower 500s?? once a few things report this month and the next, i expect i will be breaking 500 (by paying down to 1% or so, and having timely payments to my CCs and car payment)

any advice would be GREATLY appreciated.  oh, and we have a few months before we really NEED to apply and purchase the house.  we are going to do all of the painting and doing the kitchen and things over so really a few months..think we can get our credit together?? 

[ShanetheMortgageMan]

How is your credit history for the past 12 months?  If there aren't any late payments, then FHA could be a good route for you to go... as even with lower scores below 530 there are still some lenders offering FHA (most FHA lenders require 580+ these days as an FYI).  If you don't feel comfortable financing $153k or can't qualify for $153k then I'd suggest you put money down - otherwise I'd have your uncle sell it to you for $200k and give you a "gift of equity" for $47k which would leave the $153k that he needs to make things work out on his end.  So basically you don't put any money towards the down payment, you only would pay for closing costs.  A gift of equity can only work between family members, so your situation is ripe for it.