If you want to pay to fix the repairs, ask you lender about setting up a Repair Escrow so you can complete the repairs after you close. This should satisfy the Underwriter's condition so you can fund your loan.
I hope that helps...
All the best,
Roswell Moore, CMPS
Certified Mortgage Planner
We are a Direct Lender, Mortgage Bank where we originate, process, underwrite, fund, AND SERVICE our loans, in-house, with FHA (starting at a 580 score AND still only 3.5% down), FHA Streamline refinance loans (NO minimum credit score, NO appraisal required), HARP 2.0 - No Appraisal Required for Refinance for Underwater Home Values, HomePath, Investor Friendly (10 financed properties), VA, VA Refinance loans (NO appraisal required on IRRRL loans), USDA loans, Jumbo loans, Conventional loans, plus, we allow Escrow Hold-Backs!
My first effort would be to get a bid or two on the drainage repair if you haven't already. It may not be as expensive as the sellers think. Make sure the sellers know you cannot close the deal without the repair (it's amazing how often we assume what the other side knows and does not know).
Another option might be (if this is THE house for you) to increase the purchase price in the amount of the repair so that the seller gets reimbursed at closing for the repair. The house, of course, will then need to appraise for the increased amount of the sales price. The in-between position is for you to offer half the cost of the fix and see if they will come up with the other half.
If the seller has no cash, see if you can find a contractor who will agree to be paid out of proceeds at closing and then schedule the work for as close to closing as praticable.
You might want to inquire about an FHA 203k loan, which would allow you to close and then repair with money from your loan.
Obviously, if there are lots of other houses that will satisfy you, then you can always walk away.
Pay attention to your inspection deadline, though, so you don't lose your earnest money while you're figuring out what to do!