As Bill said, there isn't really a middle ground any more between FHA and "hard money" - where sub-prime used to lie. However, FHA can be the sub-prime for today. FHA allows down to 530 credit scores (with 10% down), but there are not many lenders willing to go with FHA's guidelines without placing their own more restrictive "overlay" guidelines. Fortunately, as a broker we do have a lender that will manually underwrite the loan down to 530 scores and another that will go down to 580 and still a couple more lending down to 600. Obviously, your entire situation and credit history needs to be looked at to determine what is possible and what is best for you. There also may be some things that can be done to improve your scores as well. Give me a call or shoot me an email if you'd like further help.
Sr. Mortgage Loan Originator
1st Rate Home Mortgage
If one has been in this business very long, then one specializes in challenging mortgages... :) :(
These days a good down payment does not mean much unless you are talking to a hard money lender, which I will assume for now you are not (12% interest rate plus 3-4 points). Just how bad is your credit? Have you had a mortgage credit report pulled to get an accurate idea (vs. any other source for a report!)? With "bad credit" your best choice may be a FHA loan, which requires little down, but allows for the lowest credit scores.
Give me a shout and we can discuss your specific situation, which is the only way you are going to get a correct, complete answer.