From Managua, head to Mercado Mayoreo and take any Esteli-bound bus. Once in Esteli, go to Cotran Norte a short walk north of Cortan Sur, where your bus may have arrived--ask anyone, and take any bus to Somoto. These leave hourly. Alternatively, direct buses leave from Managua Mercado Mayoreo to Somoto less frequently.
From Choluteca Honduras, take any bus to San Marco de Colon, take any frontera-bound bus, then transfer to any Somoto bus once you cross the border.
Coming from Managua, you'll end up in Somoto's bus station. To get to the centro, cross the highway and walk four blocks south. The central park will be one block to the right, next to the church. At night, you may want to hop in a taxi.