Thanks everyone for your time and suggestions.
AJ - I do have the $1400 number for closing/appraisal in writing from the lender. The house is technically habitable, but replacing all of the floors is one of the improvements that needs to be done before moving in. The reason is because the house is 35 yrs old, and it has the original shag carpet throughout, including in the bathrooms. I find that to be unsanitary, especially with a 5 year old and 2 year old who play on the floor constantly I want them to have a clean environment. For the most part the other home improvement items could wait and be done as we save for them.
Arebelspy - Thanks for the numbers regarding the financing cost. The $1400 cost to take out a mortgage which will ultimately become a short-term loan is definitely the main reason I'm hesitant about taking out a mortgage. I'd rather see the $1400 be put into improvements. We don't currently pay rent or have a mortgage so our savings per month won't go up (very fortunate temporary situation). Once we move it eliminates my commute, but the savings there will be offset by taxes/insurance on the property (~$100/month).
Reido - My risk tolerance is currently somewhat low, not from an investment perspective, but from not having some emergency cash on hand. We've moved to a very rural area, and if something were to happen with my job (also medical related but i do IT work) we would need to consider moving back to a more populated area for me to obtain work in my field. I don't foresee that happening, but it's a risk I need to be prepared for which is the main reason I'm hesitant to drain savings completely. Thanks for the link, I will read up more on Permanent Portfolio investing.
psalmela - Going with a HELOC was something I'd thought about, but wasn't sure how that would work on a newly purchased property?