Checking with mortgage brokers and lenders for a possible solution, such as a renovation loan, is your best bet. As one person already stated you may need to take out mortgage insurance. I think Wells Fargo, Chase and Bank of America both have programs available. I don't know if 20% down would allow waiving the mortgage insurance in this case. One of the newer programs is set up with Lowes, where they come out and price the whole project.
I would NOT reccomend "Take the risk.... Complete the kitchen. Have your attorney hold escrow, etc.". Unless Miami is different than our side ....there are documents at closing that you must sign, for your loan, that state you have NOT done anything to the property that could incure any potential liens.
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Broker Associate, GRI, CDM
Real Estate Consulting, Marketing & Sales
Prudential Tropical Realty
Your option, if you don't like the FHA rehab loan, is to find a non-conforming loan that will allow you to pursue this project. Non-conforming loans are more expensive than conventional and conforming loans.
Or, you can just find another freaking house with a kitchen!
Punta Gorda Realty
Check with your lender and see what they say, but ALWAYS have a home inspection done by a licensed inspector (you'll have to pay for it, $300-$400) and make your contract contingent upon it, because if the kitchen is non-functioning, you don't know what else is wrong until.
If a lender will not provide a loan on the house because of a non-functional kitchen, every buyer does not have all cash will find the same challenge. Realizing this fact, the seller and their listing agent may very well be willing to work with you. Find out from your loan officer/underwriting what exactly is the condition for funding. Have them list the issues (probably from the appraisal?) that indicates a "non-working" kitchen and negotiate with the seller to repair prior to close of escrow. If I were negotiating the deal, I would push the seller to complete all prior to close of escrow. The seller will have this challenge with anyone that is not paying all cash.