FHA backs the loans and puts minimum guidelines for approval, but individual lenders can set conditions over and above FHA minimums. Shane did a good job at giving you some non-traditional trade lines to consider and at yelling at your lender. It's really a shame this didn't get caught up front and really should have.
Tell this lender to look at all the options and that they should have notified you of this before you paid for an appraisal and packed your stuff. You have a legitimate reason to be angry with them.
In the mean time, talk to some other lenders and be right up front with your situation. No sense wasting time with someone who will run into the same thing.
On a personal note, it's a shame when someone who has been responsible, paying cash and not getting in over their head can't qualify. It's also a lesson to get credit, you have to use some. Let us know how this turns out.
If anyone can do it, one of them will be able to.
With most lenders FHA loan programs they are looking to see 3 trade lines of 12 months each, but I've read as little as 1 traditional trade line with 12 months of recent credit history can be acceptable (that is our guideline in order for a score to be able to be used - a minimum of 1 trade line either installment and/or revolving that has been active for at least the previous 12 months).
Does the bank you are going with accept non-traditional credit? I have outlined a lot of information about non-traditional credit in the web reference, including examples of non-traditional credit that can be used (perhaps some you haven't already thought of), how much of it is usually needed, and how someone can verify their non-traditional credit in order to qualify for a mortgage. If he cannot document enough non-traditional credit, then he may not be able to be deemed credit-worthy for a mortgage. It's a shame this lender wasn't able to make this determination earlier in the process - as in WHEN YOU APPLIED FOR THE MORTGAGE AND CREDIT WAS IMMEDIATELY CHECKED (that is me yelling at your bank for you).
http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?addr are the official FHA guidelines on "Borrower Credit Analysis"
Is your bank M&T Bank?