I have seen some where they wouldn't approve the loan due to very minor things such as peeling/chipped paint and missing window screens. 

I'm no paint expert (and to remain conservative in my estimates) I'm going to assume the worst for now and say the paint that is peeling off the walls is lead based.Does anyone have any idea what the process is and the costs associated with lead paint removal? 

Keep peeling the layers back on the onion, and if it is rotten don't feel bad walking away!

Stain is better than paint because paint may start peeling off.

I'm leaning towards the cheaper peel and stick version in an effort to save some budget money, but then again, I don't want to be too cheap. 

Find a best of breed duplex--No 7' ceilings, No 8' x 8' bedrooms, no peeling exterior paint, ideally double pane windows, etc. 

On an airplane put on our own oxygen mask then help other.

Can't have peeling paint or exposed wiring.In the condition you described it shouldn't get passed an FHA inspection or an FHA appraisal.You would have to get an FHA 203K rehab loan or another type of rehab loan.Also wouldn't advise doing work on a house you don't own.

That's a standard they interpret very strictly.Common failure items include peeling paint (even a tiny bit), cracked glass, loose hand rails, crumbly cement steps and rotting wood trim.Go for the FHA 203K construction loan or a portfolio loan with a local lender. 

@Mark FriesI am a project manager for an industrial flooring company’ that is number one in the world for epoxies.While we do not focus on residential garages, we do get calls all the time about paint/epoxy flaking/peeling off of floors from diyers or contractors that don’t care about providing customers with the correct information.Prep is your your biggest thing to worry about with epoxy floors.