FannieMae Homestyle for 1st Timer?

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Hi Everyone. A friend and I want to go in together on a place up in the Catskills - the intention would be to AirBnB it and as well, at some point, build a Tinyhouse of similar structure on the additional land.  My friend has a solid history AirBnBing the garden level of his parent's house in Brooklyn. And this Catskill region, especially this village area, is  hot place year-round. (I am a student myself so I will only be contributing to the process and then going in with him later). 

He was approved by a local lender for 70k.  The lender was pushing their conventional mortgage with a 20% dp.  When it comes to properties in the region though, almost nothing worthwhile will qualify for conventional (according to the standards she set for the properies). So onto a purchase/reno.  She was steering him towards their private purchase/reno. She said less red tape, less restrictions. It's 30% down. Now when I came upon Homestyle, I told my friend and he inquired. 

The lender said - complicated, you need to have lots of funds up front to cover costs of inspector/contractor/appraiser, higher fees/closing, who knows if you will be turned down somewhere in the process and lose all that money/time, can you even find a HuD-approved person near house, is it a big enough project that you can even secure a contractor.

After reading all the great Homestyle reviews on here - I am perplexed!  The house is 1960, 1200 Sq Ft 3BR. On a .3 acre lot with stone walls and a garage, bordering hundreds on acres of state land and it includes an additional 2 acre parcel about 25 feet up the road with a falling down 1930s cabin on it.  The house hasn't been lived in in 20 years.  It has some kind of damage in the rear two bedrooms where the floor is sinking but solid stone foundation, cedar siding, good roof, 1960s/70s interior.  Def needs bathroom/kitchen update, new floors, septic/well checked out, exterior stone wall work, patio redone.  Was 79k but now on market for 120 days and down to 60k. Place across street sold for 40k (does not come with a 2 acre parcel like this one! and even in better interior shape).  

What would you do?  Is HomeStyle that much a headache? Why is this lender telling him to be wary and even scaring him away from it (i.e. telling him he may put out lots of $ up front and still get turned down at end of process).   But a private purchase/reno would be upwards of 25k DP if we consider even a low offer of 45-50k and 20-25k in reno.