Issue 1: The loan amount. Often times the minimums are set by lenders because of the risk of a loan being classified as a "High Cost" loan. In other words, certain fees are a FIxed Cost (such as an appraisal at about $275). When you add all of the costs up, it calculates as a higher than acceptable percentage, since some of those costs are the same regardless of the loan amount.
Issue 2: Property Condition. Even if you are approved for a loan, the property may not be an "acceptable asset" to lend on. Many lenders require the home to be "safe and functional", but outdated is ok. If you are dealing with a home that needs work, you can get an FHA 203 (k) Rehab loan which solves this. This would allow you to purchase and include all of the rehab in one loan (but it must be completed by a contractor).
There are Community Loan Programs which certain banks must offer which may allow for the lower loan amounts, as well as possibly credit unions.
If you have any more questions or want to discuss, feel free to call me.
American Midwest Mortgage Corp.
Let me know if you would like me to have some brokers do some digging around for you.