yes that will most likely disqualify it from VA. you should just remove it. call a local contractor to see how, if they don't want to do it they may be kind enough to tell you how to. since its not popcorn ceiling the chances of it hurting you are almost 0. once it's removed, get your home tested for air quality and provide that to the VA loan officer and you should be good to go

I've looked in the condensation covered windows and noticed mold covers about two feet up on the walls and the ceiling above the stairs has fallen down. 

I would like to:Replace the roof: ~$6k-$7kReplace drop ceiling with drywall to increase ceiling height ~1-2 feet on first and second floor: ~$5kReplace panel with drywall: ~$5kRemove Wall: ?

I would like to:Replace the roof: ~$6k-$7kReplace drop ceiling with drywall to increase ceiling height ~1-2 feet on first and second floor: ~$5kReplace panel with drywall: ~$5kRemove Wall: ?

The FHA says that examples of such problems include but are not limited to the following: Missing handrailsCracked or damaged exit doors that are otherwise operableCracked window glassDefective paint surfaces in homes constructed post-1978 (because of lead paint hazards)Minor plumbing leaks (such as dripping faucets)Defective floor finishes or coverings (worn through the finish, badly soiled carpeting)Evidence of previous (non-active) wood-destroying insect/organism damage where there is no evidence of unrepaired structural damageRotten or worn-out counter topsDamaged plaster, sheetrock or other wall and ceiling materials in homes constructed post-1978Poor workmanshipTrip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)Crawl spaces with debris and trashLack of an all-weather driveway surface=================There are many areas, however, where the FHA does require problems to be remedied in order for the sale to close.Electrical and Heating The electrical box should not have any frayed or exposed wires.All habitable rooms must have a functioning heat source (except in a few select cities with mild winters).Roofs and Attics The roofing must keep moisture out.The roofing must be expected to last for at least two more years.The appraiser must inspect the attic for evidence of possible roof problems.The roof cannot have more than three layers of roofing.If the inspection reveals the need for roof repairs and the roof already has three or more layers of roofing, the FHA requires a new roof.Water HeatersThe water heater must meet local building codes and must convey with the property.Hazards and NuisancesA number of conditions fall under this category.

I did a full tearout of the kitchen ceiling and remediated all the water damage.

@Zach BallouDid you think about electric fire place...low cost and easy to install I know they look a bit modern but can install a nice mantel and some decorative trims around if needed or even some leadger stone panels from floor to ceiling surronding the fireplace would be an option also.Search ebay for electric fireplace for better idea.Good luck

You can hang a ceiling fan or change a light fixture.

It was determined the upstairs AC unit failed and the water was from accumulation in the air handler, the amount unknown but enough to cause damage to our ceiling.   

Instead, I chose to focus on my high ceilings and renovated kitchen.