Getting a mortgage when the house needs extensive repairs.

[Tom R.]

I made an offer today on a for sell by owner house that is in need of extensive repair. Then it occurred to me that I might have a problem getting a mortgage. Mainly because there is an unfinished, un-permitted 400sq ft add on with a sagging roof. I made my offer well below the appraisal price knowing that I will have to either have the add on removed or bring it up to code. My hope is that I can turn the add on into another bedroom possibly with a half bath but if I cant I've already budgeted for its removal. The rest of the house needs flooring and paint and the ceiling under the evaporative cooler need to be replaced due to the cooler leaking.

What do you think? Will the mortgage company give problems even though the offer is more than $20k under the appraisal value?