Short answer: it’s either ignorance on the seller’s part, or the property cannot pass the FHA inspection that is required. Whether it’s Claremont, Glendora, Pasadena, Bakersfield, or Pomona, the property must meet minimum FHA standards.
Long answer: Lately, FHA loans are harder to finish and close. There is a set of FHA rules. In addition to those rules, “investors,” the entities that buy the “paper” on Wall Street, can add their own “over-lays” to the rules. For instance, if an investor decides that anyone below a 620 credit score is too risky for their appetite. Well, no one can make them buy a loan with a 580 credit score borrower. Therefore, no lender will tolerate a loan on their books that can’t be sold to provide liquidity (cash) at some point. They won’t do the loan, even though “the rules” may allow for it. Seller’s get nervous at the time-frame needed to close because there are lots of little details to pay attention to.
Sellers may feel that an FHA borrower is inherently more risky. That is not true. It simply takes a broker with FHA experience and current working knowledge to know whether or not the file is doable from the get-go. In fact, as mortgage insurance companies increasingly stop insuring conventional loans with less than 20% down payment, by the time a seller can actually find someone with that much cash, you could have already closed your FHA loan! Simple ignorance, in many cases.
If the property can’t pass the inspection, you can easily do the FHA 203K rehab loan. Sellers get nervous over the extra length of time these can take…but if the property is in bad condition, by the time they find someone with 20% AND enough cash to fix it…hello, you’ve already closed your FHA loan. Simple ignorance.
FHA loans are no magic pill…they can take longer to close. But there is no better medecine for this ailing lending market than only 3.5% down payment, 6% allowable contribution from the seller and an option to finance repairs right into the original loan.
*This is not an offer to lend. 
Obama Refinance Plan For San Jose Homeowners AnnouncedHome Affordable Refinance Program Update Harp 2 Bay Area San Francisco California March 2012 Guidelines for Purchasing a 3 to 4 Unit Property with FHA Financing in Alameda, CA8 Year Fixed to 30 Year Fixed. You Can Choose Your Loan Term In San Jose
