Foreclosures and Short Sales are the worst match for FHA and VA financing. While most of these properties are usually priced under market value, they frequently generate multiple offers.
The banks, when presented with several offers, will most likely choose the offers with no contingencies, the cash offers or the conventional financing offers with higher down payments.
Another important consideration is that these distressed properties are in need of serious repairs that the bank owners are not willing to comply with and that -in most cases- such repairs are demanded by FHA and VA appraisals.
The result is that the FHA and VA financed buyers are placed in the bottom of the piles, left with very little or no chance to grab these opportunities.