I completely agree with Kerry Harvell on this one, as we are starting to see many of the current REO and Short Sale type properties on the market take "stronger" offers that are cash or conventional financing with more than average down. There are however some banks that will consider doing FHA financing for Seaside homes. My suggestion to you is this: unless you are anxious and in a hurry to make your purchase, I would wait for a few more months as a new wave of homes hit the market and average prices are lowered because of it, as you will be in a stronger position to acquire a home even with FHA. I expect the buyer pool will thin out significantly because of the impending failure of many commercial and industrial sectors which will hopefully create less competition for you entering the housing market. Residential prices will continue to drop as more foreclosures hit the market which now include many "prime" people who loss their homes due to rising unemployment rates, rise of inflation and or expected deflation, higher tax rates, etc. So the bottom line is that you can wait a while longer and get more house at an affordable price in 6 months or so. Best of luck to you!

Seaside is a tricky place to do FHA loans, but not impossible. I've seen several close escrow lately. The problem is you are in competition with lots of buyers who have more desirable financing. Your Realtor is probably trying to shield you from the disappointment of writing offer after offer only to see someone else get the house. As Realtors, we're often blamed for "not getting it done".

The reason many Seaside properties don't go FHA is because of the condition of the homes. Illegal garage conversions, leaky roofs and broken windows can cause a rejection of the loan by an FHA appraiser. Banks would prefer to not get into escrow and find out your lender won't fund you.

That said, if we see a flood of properties and the buyer pool thins out, you might be able to buy an REO later on.

It sounds as though your agent is trying to prevent you from suffering disappointment. That said, you can make the decision to pursue a property as long as you're not going to blame the agent if you don't succeed.
We are all aware of the 20-30 multiple offers on each property in that price range. I'm sure that your agent has advised you of this as well. Many of the people competing for homes are cash buyers who are investing for family members. Those buyers may be able to pay for a home than you can.
Conversely, if you don't put in any offers, then you can't get a home.
So, you need to talk between yourselves and then let your agent know how you want to proceed. You're the buyers. You get to decide if you want to make an offer. Your agent can give you advice and opinions.
Good luck.

Yes, you are getting good advice. That said, you can still try! The banks that are on the selling side don't like FHA but listing realtors will put in an offer for FHA buyers sometimes. I know some properties that I checked out for buyer the listing agent had put in an FHA offer. Your agent can call each property before you see it and ask if they are open to FHA offers.