If your credit is below 620, you will likely need an Alt-A, Subprime or Hard Money loan.
Thoroughly go through your credit report. Check for any inaccuracies. If a late or collection is incorrectly reported, look for any and all documentation you have on the account. If you have proof that it was reported incorrectly you can usually get the inaccuracy removed from your credit report. Submit all proof to the three main credit bureaus: Equifax, Transunion and Experian. Correction of late payments or collections may significantly improve your credit score and future mortgage payment.
If you feel you will be able to get your credit back on track shortly, avoid long prepays. If your credit improves you will likely be able to refinance into a mortgage with a better rate and/or payment.
Try to not open any credit cards or loans that will report on your credit within six months prior to applying for a mortgage loan. If you are low on funds, focus on paying credit cards, mortgages and loans that report to the credit bureaus. Many other bills do not immediately report and can therefore withstand a late penalty without affecting your credit. Be very careful you do not let the account slip too long where it goes into collection. Check the accounts frequently to make sure you have payment arranges in place. Collections tend to be detrimental to your credit score.
If you are in a high interest loan and want to keep your property, you can refinance your home to try and get a lower interest rate. Keep in mind the total revenue savings may be compromised if you are paying off a prepay or entering into an adjustable mortgage like a negative amortization loan which has the potential to cost you more in the long run.
You can also sell your home to get out of a high payment.
Another option is to take cash out of your home to consolidate other debts. The consolidation might create enough savings and tax write offs to make your total monthly payments more affordable.
Applying for a Mortgage Loan with Bad Credit