How does a quit claim deed affect my FHA loan home purchase?

[J C.]

Background: My wife and I are under contract to purchase a home using an FHA loan. Today however we received a call from our lender informing us that it seems like the title has a date of August which would break the FHA's 90 day rule. Due to this he informed us that we would have to do a conventional loan. We knew about this rule and had previously checked the house to see when it was last sold (specially because we knew the house had been "flipped") and it had a date of February (well above the 90 day rule), and the seller had also told our realtor that he had purchased the home 3 months ago. Since we had this information we so no problem with proceeding with an FHA loan. With it being a Saturday the title company isn't open so I took it upon myself to do some research and found that the property had a quit claim deed (QCD) filed in August which transferred the property to the current seller. According to the image of the QCD contract I found on public records online, the transfer was done for a total of $10 dollars.

My questions are:

1. Does this QCD mean that an FHA loan will no longer work? Did we really just lose our opportunity to use an FHA loan over a measly $10 QCD? If so, is there anything that can be done to allow for an FHA loan to still be used?

2. The "as is residential contract" that we and the seller signed clearly states we would be using an FHA loan to finance the purchase. With the seller being a flipper (who most likely is aware of the 90 day rule), does the fact that he signed the contract knowing that it was an FHA loan and knowing that the title was within the 90 days have any effect or repercussions?

I'm not claiming to be well versed on these issues but it would seem to me that if he knowingly signed a contract stating that an FHA loan would be used and he knew the title wouldn't go through due to the 90 day rule, there is something inherently wrong with that.

3. Lastly: In the case that we have to switch to a conventional loan, we were told the down payment would have to be raised to 5% (as opposed to the current 3.5%). Is this true across the board or specific to the lender? I've read online about conventional loans now allowing a 3% down payment (LTV specifically) so I'm wondering what the stipulations are for that.

Thank you in advance to all of you who are willing to take the time to read this and help us out!

(sorry if I posted this on the wrong forum)