Mortgage Information?

My wife & I are getting ready to apply for a mortgage. Our current before tax income combined is right at $95,000. My credit score is a 561 & her credit score is a 731. The only debt we have is 1 student loan I have which is around $11,000 and is current and she has a car payment which is current as well. We are hoping to buy a house that is selling for $135,000. Is this possible? Any advice would be appreciated.

The reason for my score being a 561 is due to past credit history. I had some accounts that had been in collections. However, all accounts have been paid off & I have 1 judgement on my credit report but it has been paid in full as well and any open accounts are in good standing. I spoke with a Credit Consulting Firm and they said it will just take time for the past negative history to age and my credit score will improve as long as I keep everything now current going forward.

Concerning the down payment all research I have done says that in Missouri (the state I reside in) requires 3.5% down plus closing costs. I have the means to put down about 7% plus closing costs currently.