It sounds like you are on the right track! You definitely need to touch base with a lender to help you through the process. They are the "experts" on this particular topic and will be most helpful.
From what you have told us it appears that the only thing that holds you back from qualifying for the program is the collections and your credit score which coincide. You may want to speak with a lender prior to paying off any collections however. There is always a possibility of it knocking your score down further in the beginning....especially if there has been no activity on the account in years. New activity often causes a drop. A lender may require that you pay it off prior to closing your loan but there may be a way to do so without hindering your credit even further, like paying it off at closing if it is a condition of the loan.
If you can get your credit card utilization down to 30% that will help your score as well. You can sign up for creditkarma.com free of charge and this allows you to monitor all of your debt and credit card utilization. It also shows your Trans Union credit score (which will be different from the score the lender pulls, FYI).
I like to use Lindell Shoemake at BOK 405-216-2888. BOK processes and services their loans locally and Lindell has been in the business for decades so he is very knowledgeable.
If I can help you by setting up a home search to automatically notify you when something comes up so that you can stay on top of what the market looks like here until you are ready to purchase please give me a call!
Best of luck,
Michelle Foy Belknap
A Better Way to Real Estate
Keller Williams Realty Elite
Karen Moseley, Realtor
Coldwell Banker Select,