This obviously puts me at a disatvantage when it comes to buying bank-owned homes with very specific criteria for purchase. Many/most will simply not accept FHA loans.

This is a red flag. The banks don’t care about the ‘color’ of the money on selling off the property. The part they do concern themselves with is: are the funds already available or approved, if not, how quickly can they be available or approved. What is the likelihood of the funds not being available or approved?

That said, I have found the perfect home for us- but it is bank owned, and they require a significant down in order to purchase.

Another red flag – FHA is allowing high LTVs, which means small down payments.

You purchase the home with your existing capital. You then sell it to me via traditional means at a premium that you and I will contractually agree to.

I suspect the ‘traditional means’ is owner(in this case you, the initial buyer) financed. Remember, this individual is stating ‘significant down’ required, which hints to me that their FICO is trash. It also raises the question, if they can’t get the down payment to buy from the bank, how are they going to get the down payment to buy from you?

The other option is that this person is trying to do a short sale with an inflated price (not quite bank owned but will soon be). What guarantee is there, that they will then purchase from you? You might end up being stuck with the property.