That situation is by far the majority of sales you see on the market.
You put your home on the market and sell it. When this happens, your lender gets paid first. If you have a 2nd on the house that lender gets paid next. Whatever is remaining is yours. If the price you can get for you house is less than the amount you owe on your mortgage then your lender will need to approve a short sale since they would be losing money.
you need to put it on the market to sell and pay off your mortgage. then if you have equity and or money left over from the difference between the sale price and what is left on the mortgage you can use that money to put down for another home or save it for the future.
They will take the lowest middle score. Your scores don’t look good enough to qualify for a mortgage. You need at least 620 for an FHA and 720 with a 20% down for a conventional.
Also, there are three versions of your credit report/score. The consumer version that you get, a version weighed for car loans, and a version weighed for mortgages. The mortgage version tends to be lower than the consumer one.
Keep in mind that mortgage companies will require you resolve any derogatory items on your credit report. You may want to negotiate settlements for as little as you can. Depending on how old the debt, you can settle for 25% to 50% in a lump sum payment. Get any settlement agreement in writing and don’t give collectors direct access to your bank account.
You may have to hold off another year or two to improve your scores and build more downpayment.