How do I purchase a short sale with conventional financing

[Marcus Johnson]

So my last deal went bust due both to my banks inability to understand Fannie Mae guidelines in a timely manner and due to the home needing repairs and the city requiring an escrow for repairs of 25% of a contractors bid. My new bank looked at the appraisal and stated this:

We are not able to lend on a C5 or C6 rated property (no one else can either- FNMA and FHLMC require C1-C4). The items need to be repaired/replaced to bring this to a C4 or better condition before we can close on it. The appraiser noted missing storm windows, missing kitchen cabinets, missing ceiling tiles, no appliances, some tile and carpet missing, holes in the drywall, some missing siding, and some garage items- door, siding and a hole in the wall. Total work about $10000 per the appraiser.

So the question is, if according to two different lenders and gov't guidelines, how is it possible to put 20% or 25% down on a shortsale, foreclosure or investment property with conventional financing on a home that needs fixing up, which all flips need done. According to them, you pay cash or a 203b loan.