Does a rehab loan make a flip not worth it?

[Charissa B.]

A sibling and I are interested in dipping our toe into flipping. We looked at a few properties and found one that we like. It's a homepath property and we can't get a straight answer on whether it will qualify for conventional financing without a rehab loan. How do we figure that out?

It looks like the roof might have a leak or may have been leaking at some point. There is minor drywall damage. We assume it needs a new roof. 

Our realtor also found a septic inspection report from earlier this year that says the septic was showing signs of malfunctioning. It says there are some indications of a leaking tank.

One of the rooms is missing some flooring and someone ripped out a wall and there is drywall missing in that space and a plug and light switch hanging from the ceiling. In the back of the house the paint is peeling a bit and a few boards need replacing.

The house could be worth anywhere from $200k-300k and it's listed for $120.  We can put 20% down and pay cash for the repairs, except maybe the septic. We would also offer less than $120. Unfortunately we can't pay for the house and repairs in cash so we would need some kind of financing. An alternative option is that my sibling lives in the house after we have fixed it up, or we rent it out. 

When you get a rehab loan how do they determine what they want you to fix? Since with a rehab you have to pay contractors to do everything, does that usually make it not worth it to buy?