buy with only a 5% downpayment and get a break on closing costs .
In the long run getting your scores back up in the range of 700 will help you in a lot of ways besides getting you a mortgage. I know if you buckle down and focus on it you'd be amazed at what you'll be able to accomplish in a year.
The challenge for you will be to put a substantial amount of cash into the mix. The more you put up initially, the less risk for the bank and hence you might find a sympathetic banker (a bit absurd sounding...) or credit union.
The Buy on Contract route might work but be weary of any deal that is too good to be true.
Best of luck.