FHA limit I believe is 6%, maybe not that much in certain circumstances, and a 203k may be different.

Of course, if you plan to have a child under the age of 6 live there, you HAVE to get it fixed as they CANNOT live there under any circumstances.

The REO was horribly neglected, sitting vacant at least since 2013 or longer ... which meant it needs a lot of work, $150K worth of work to be exact.

Based upon my experience, a buyer in a similar circumstance as you will be signing an extension and closing whenever the bank is ready. 

Do you get to split the commision with the sellers agent in that circumstance?

The following items were neglected in order to save money, as examples: our hedges all had extreme white fly damage, wood rot due to water damage and putting off painting, our pool restrooms have massive holes in the roofs and we are in the process of reconstructing 2 of them.

Of course our circumstances are very different so what makes sense for me may not be the same for you.  

All of the comments about not renting to family is the right business advice in the vast majority of circumstances, although I do agree with @michele fischer too. 

There are local hard money lenders who can work with you under the right circumstances.  

Hey @Jeremy Brown,The requirement for a full foreclosure is 7 years without extenuating circumstances for a conventional loan (you can't use FHA on the rental, unfortunately).