I recommend you get with a good mortgage loan officer and have them review your credit and advise you of your options. This will include credit score, type of loan eligibility, what you should and should not pay off since somethingâ€™s on your credit can be overlooked by a lender. and most of all how much (price) of a home you qualify for.
First, settle any outstanding debt. If you owe money on collection accounts, charge-offs and/or judgments, make payment arrangements and get these accounts paid promptly.
Next, begin rebuilding your credit. If you have current accounts with good payment histories, or even some previous late-payment-blemishes, make sure you continue to pay those accounts on time. If you do not have any existing credit accounts then you'll need to establish several in order to create a viable credit history.
I have found that CONSUMER ACTION is an excellent resource for objective advice on all things credit related. You'll find free and sincere advice on everything from settling collection accounts to rebuilding credit to building credit from scratch on their website. http://consumer-action.org/
Beware of anyone offering to "repair" your credit! The Federal Trade Commission issued a stern warning last year that such offers are scams. Find more from the FTC HERE. http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm
The best way to buy a home is to have a decent credit history combined with sufficient Income and Assets for a home purchase.
The best way to have a decent credit history is to settle negative outstanding obligations and pay all your bills on time for at least two years.