Non-Occupant Co-borrower for FHA Multi-Unit

[Ross Morgan]

Long story short: I was pre-approved by my lender for an FHA two-flat in Wisconsin. My father agreed to co-sign on the loan. He lives in Illinois and will not be occupying the unit. I had a follow-up call with my lender today and he said that after reviewing the situation, having a non-occupant co-borrower requires a 25% down payment, which is obviously a significant increase from the 3.5% I had expected for the FHA loan. The two-fat is just under $80,000 and I have about $800 in inspections etc already tied into it. Is there any way to salvage the 3.5% down payment, or am I sunk? Any help greatly appreciated.