I'm a Renovation Mortgage Specialist with Wells Fargo. If the home is in halfway decent condition (not falling down), then oftentimes the purchase price plus renovation costs can be lower than the cost to construct a comparable property. I would get a home inspection to check for hidden damage, but also get a contractor who specializes in remodel/renovation (make sure they are a licensed and insured General Contractor) to give an estimate of repair costs. With a home inspection and GC, you can determine if the real estate sales price is fair.
Call me if you would like to discuss this further. I would have to have more details to give more information regarding the mortgage program and whether it will work for you.