Duplex Re-zoned as Single Family - Need help on my options!

[Jake Haas]

Hi everyone - 

We recently put our first deal under contract (duplex) that we're planning to house-hack. The property has been rezoned as single family, but is considered legal nonconforming per the appraisal (grandfathered use). We are looking to do FHA financing, but we've run into a snag and need some help understanding my options.

Details:

• The lender has contacted the city and they will not rezone the property to multi-family.
• If the property were destroyed we would only be able to rebuild a duplex at 150% of the last assessed value (100k) property is under contract at 225k - this seems to be the hang up. 
• I would be fine with rebuilding as a single family if the home were destroyed as single families in the area are worth more than duplexes. 
• The loan officer has never run into this issue in the past and is trying to figure out our options, he seems to want us to purchase the home as a SFR

Questions:

• What are my options?
• If I were to finance it as a single family residence would I lose my grandfathered use status? I would look to get the 2nd unit rented within 2 months of moving in.
• If it is financed as a single family property and I use it as a duplex do I still get the tax advantages such as depreciating the 2nd unit + write-offs?

This is my first deal and I don't want to lose it. Any help is greatly appreciated!