Buying property zoned SF but appraiser calling MF

[Nicole Heasley Beitenman]

Hi BP! I'm under contract for a property zoned SF in Youngstown, Ohio. The home belonged to my grandfather before his passing in 2013, and my uncle sold it in 2014. I'm purchasing it as an owner-occupant with a conventional lone and 5% down.

It's zoned single-family, but the upstairs was converted into an apartment sometime before my grandfather purchased it in 1993. They added an exterior door and steel staircase and installed a tiny kitchenette. I'm trying to buy it with a conventional loan because the seller let it go to hell, and there's no way it'll pass FHA. I also can't put 15% down, which is the amount I'd need for a duplex.

There are no separate utility meters or mailing addresses. You can still access the second floor from the first floor as you would in any normal SFH. There isn't even a lock on the door to the staircase between the first and second floor. The owner has someone staying up there, but there's no lease, so I argue they cannot be called a tenant.

Has anyone dealt with this before? How did you get around it? TIA!