re: Anybody done an FHA loan?

We used FHA for our first loan. We were pretty much in your same shoes. It worked out for us, but the first few months were a little sketchy. We made it work fortunately.

If you really like this house, my advice is live as cautiously as you can and go for it. It is a risk though.

I don't know what the rules are, but you may be able to offer a little over asking price (if the appraisal supports the price) and ask for the money back at closing for allowance. Play the rules if you can. Ask your agent what options you have. FHA is more strict than conventional loans, so you may not be able to do anything here.

Another piece of advice. Something I didn't realize before buying a home but worked out for me anyways.

You're buying at a market peak by any estimates. You don't currently own property. If you let the market come down some (means being patient for another year, maybe two), you can buy in a low time, and the market will correct and you will actually make something on your house when you're ready to sell and move up.

When you already own a house, and look to move to the next house, you now have to deal with a decision to sell your house in a peak market, and buy the next house in a peak market. Or you have to sell your house in a low market and get less than it'll eventually be worth, but buy something at a lower value.

Buying your first house is your best opportunity to capitalize significantly on a fluctuating home market and the best way to do that is buying in a low market, which it currently is not a low market.