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How to Insulate Finished Attic
Insulating in small spaces is often tough. When your rafter is only 8" deep, you can use only 6" of fiberglass insulation as the rest needs to be saved to allow for ventilation, which is hardly enough. Additionally, it is very difficult to get insulation into such a tight space.
However, spray foam insulation can fill in the entire cavity. It has a higher R-value and doesn't need to be ventilated, and in my view, the best way to insulate a finished attic or cathedral ceiling. The Money Pit Guide to Insulation might be a useful resource. Good luck with the project.
Best Insulation for Small Attic
Great job identifying the source of the mold issues in the attic! Improving ventilation (the most important of which is getting that bath fan exhaust duct extended), was absolutely the right thing to do. As for insulation types, cellulose and spray foam are quite different. If you went with cellulose, for one, you'd need all that ventilation. Like fiberglass, cellulose is designed to work in an "unconditioned" space. Heat is held to the ceiling level, and everything above that is at ambient temperature (hot or cold).
Spray foam, on the other hand, is designed to convert that to "conditioned" space, meaning ventilation is no longer an issue. We used this on our 1886 home and it's never been warmer in the winter or cooler in the summer.
When it's very difficult to get insulation in a tight space in either case, spray foam insulation might be your best bet. It can fill in tough-to-get-to cavities, has a higher R-value and does not need to be ventilated. A good resource is The Money Pit Guide to Insulation, which discusses pros and cons of spray foam insulation and its types. Best of luck with the project!
Help! House Flooded Right Before Closing
Wow, that's one heck of a story! And, its not the first time I've heard of this same scenario. I spent years as a profesional home inspector and was asked once to recheck a house before closing. Well, it was winter, and the water was left ON and the heat was left OFF so you can guess what happened next. This was a bi-level home that had 6 feet of water in the lower level, and the high humidity had also caused doors, floors and walls to swell all the way up to the 2nd floor.
As a first step, I'd immediately consult an attorney and put the closing on-hold, because you will need a lot more than the assurances of your commission-hungry real estate agent to move this deal forward. This much water in a house is a huge issue. At the least, the lower level will need to be completely gutted, dried out, treated with mildewcides and then rebuilt including insulation, wiring, heating or other mechanical systems and appliances, doors, maybe even windows. Mold is a serious possibility as well, especially if there is any delay in getting those walls torn open so the drying process can begin.
You'll also need to have a licensed structural engineer examine the home and its foundation. All that flooding can disturb the soil under the home and cause shifts in the foundation that can potentially lead to cracks and instability.
Realistically, you are looking at month's worth of work here, which means you can't enjoy the home in peace and quiet. Issues could also show up months or even years later that are not apparent now but could be the result of this damage.
If you do go forward, I'd recommend you hire your own licensed structural engineer to supervise the repair and remodeling every step of the way. I'd make the seller reimburse you for that cost, and make it super clear that the engineer works for you, and NOT the seller. He or she will be your trained eyes and ears to make sure this home is put back together better than what it was when you found it.
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