Land cost included in the loan.  

Do I need to have the total amount in IRA to cover the house plus her asking equity to do the self-directed or is there a loan option offered by IRA that I can tap into?

I financed it with an FHA loan with 3.5% down.

Another consideration is to get a portfolio loan that will take on both properties at an average rate which will give you capital through a finance (refi similar).

The bank from my understanding will be writing off a loss on this loan as there is not enough money to go around.Here is where it gets interesting, there is a second lien on the properties from a seller of a hotel that the current owner of the 21 unit bought seller finance. obviously there is not enough money to get this guy paid off as the bank is already taking a loss.

You can use one of the big companies like Chase, US bank and BofA.

The house is uninsurable without repairs.We qualified for the loan with the assumption the house is livable. 

As they described it, the principal of the insurance earning interest wasn't diminished by the loan like, say, a 401k loan would be.

She doesn't want to list it and sell it traditionally because of fees.She is offering a deal to assume the loan, and it is assumable, but the problem is, it's FHA.

You can google for companies that provide this kind of service.