Must it be in perfect livable condition ?

@Seth DomotoI think your repair/capex budget is far too low, you're probably looking closer to 15%, but that varies by market and condition of the property.

I know i should be able to get a 2nd FHA loan under this condition but what happens to the 1st home (any penalties?) 

If you have financing, you should review the promissory note and loan conditions to ensure everything is correct and acceptable.

I was thinking maybe I could do a subject to and then live in the property and slowly fix it up until it is in a good condition rent out. 

From the leases and addenda, move-in condition forms & walk-throughs to letters authorizing cable/satellite/internet installs, and new PO Boxes new tenants are time consuming.  

Area and demographics....decent anchor business and property condition, accessibility etc.

The other major repairs are having 4 old forced air furnaces that since the house is winterized I can't verify are in working condition.

Building in generally solid condition.

Should I now go talk to banks about a conventional loan for "livable" houses or a HML for "non-liveable" houses to get pre-qualified (from what I have been reading, banks will not lend on houses that are not in decent condition) or should I try to get a deal under contract and then seek financing?