Hi Casey, I am a Realtor, Mortgage Broker, Certified Mortgage Planning Specialist, and have been FHA loan certified.
Where to Begin:
If you will be using an FHA loan, I would highly recommend your very first step be a "formal" FHA Pre-Approval if you desire accuracy in knowing your total costs upfront and what you can afford. There is a big difference between a Pre-Qualification and Pre-Approval. If you are looking for accuracy void of surprises you want to be Pre-Approved, not Pre-Qualified. For the differences see: http://www.Steven-Anthony.com/default.aspx?pp=39377
Via the Pre-Approval process you will know exactly what you can "technically" afford based on current interest rates, Then, it's up to you to decide how comfortable you want your payment to be by reducing your target sales price or increasing your down payment. MOST IMPORTANTLY, the Pre-Approval makes you aware of any issues that will prevent you from buying when you want to.
As part of the Pre-Approval you should also ask for a Good Faith Estimate (GFE) to identify all of the costs in purchasing your new home based on the determined Sales Price from the Pre-Approval. The GFE should include all third party costs (title, escrow, insurance, property tax, appraisal, inspections, etc.). With all of this information in hand you should then identify a Realtor who understands the nuances of how to write offers and manage a FHA loan based transaction. Purchase strategy starts well before an initial offer is made when using an FHA loan.
As far as a conservative deadline for going into contract, I would say November 1st. This provides plenty of time if any issues come up, but also allows you to be in the home for the holiday season should things run smoothly via a typical 30-day escrow.
The safest plan would be to start looking as soon as your Pre-Approval is complete because rates are in a constant state of change. A Pre-Approval is a snapshot in time based on the rates available on the day the Pre-Approval is completed.
"We will only have 3.5% down are these types of loans still difficult to get?"
With a limited down payment, a FHA loan is a smart way to buy in this market. FHA loans are not difficult to get, sure, they sometimes require slightly more documentation depending on an individual's situation; however, the program's benefits far outweigh this.
Here is a list of key benefits:
1) 3.5% minimum Downpayment.
2) Up to a 6% Seller Credit allowed for buyer's closing costs and Seller concessions (non-FHA max is 3%).
3) FHA requires that identified safety/health issues be corrected.
4) FHA allows up to $8,000 in financed energy efficient upgrades without negatively affecting borrower's debt-to-income ratio.
5) Cash reserves not required.
6) Upfront Mortgage Insurance may be financed.
7) Non-occupying co-borrowers are allowed.
8) High and flexible qualifying ratios.
9) FHA loans are assumable.
10) No pre-payment penalties.
11) Will consider "compensating factors" in determining whether a loan should be granted.
12) Only a minimum credit score of 620 required.
I would be pleased to answer any further questions (no obligation on your part). I have two excellent FHA Loan Specialist referrals for your Pre-Approval if you need one as well.