In an effort to stop homeowners from purchasing a new home and then defaulting on their current home (termed 'Buy & Bail' in the industry); the FHA is making it harder to qualify for a federally insured loan to make the new home purchase. New guidelines effective September 19, 2008 require the borrower to be relocation to a new job location, the current home must be outside reasonable commuting distance from the current residence location, the borrower must have a fully executed lease with at least 1 year term from the closing of the new residence mortgage (some major juggling will have to happen to accomplish this..), the borrower must have receipt of security deposit &/or 1st month's rent, the current home must have at least 25% equity from current appraisal. If these criteria are not met then you must qualify for the loan with income to pay both mortgages WITHOUT the credit of the rent, and you must have 12 months of payment reserves- principal, interest, tax and insurance- to qualify for FHA financing.
An FHA loan allows the borrower lower credit score requirements, low down payment amounts of 3-3.5%, and higher debt to income ratios than most conventional loans. FHA then adds on a percentage of the loan up front, and monthly payments from the borrower that pays for mortgage insurance to cover the loan with a less than 20% down payment.