I actually did this. I bought a house using an FHA loan for my first house. It wasn't a HUD house, just some people selling their rental house. Anyway, before I bought the house I had to upgrade the electrical to 100 amp service, paint the entire thing because it had REALLY old paint, possibly including lead, add a railing to the basement stairs and a couple other things.
I ended up putting about $1500 of my own money into the house before I owned it, but the sellers refused to do any work to it, and the house was a really good deal so it was worth it. I did it with the understanding that if for some reason the deal fell through, I lost that money. It all went fine, and the stuff was all stuff I would have done after buying the house anyway.
The sellers gave me a key through the realtor and knew I was doing the work. They even told me how nice it looked at the closing, saying it was their first house and they were happy to see someone else get it for theirs.
So, for whatever it's worth, I did the same thing and had no problems.