Financing fell through for HUD . Help!

[Sam LoCascio]

Help! I have a HUD home under contract. I got preapproval for a 10% down conventional loan and we were all good until (long story short) in the 11th hour my lender told me I didn't have enough credit history to qualify for the loan. He said the only way we can close on this house is if we do 20% down (which is not an option for me) or if we switch to an FHA loan. We're scrambling now to amend the HUD contract to FHA financing and I'm hoping someone can give me some insight! We can do a closing date extension for $375. I really want to switch my lender but I don't even know if this is possible because of the HUD contract.

My Questions:

-Is it worth paying the $375 and trying to switch to an FHA loan or should I just let the contract fall through?

-Can I switch lenders within this HUD contract or am I legally obligated to go with the original lender on the contract?

-Should I try for the $100 down program or just do 3.5% down?

-Has anyone ever been in a situation like this before? Any recommendations for financing my situation?

*I should mention my area is pretty attractive market so I bid above the asking price. My offer was accepted at 172,500 and the asking was 160,500. The property is a 3/2 with a detached mother in law apartment. The appraisal came in at $172,500.