Multi Family Zoning Issue and Refinance Question

[Jessica Piff]

This post has two parts.

First, I'm looking to close on this 6 unit multi family and today my realtor said she found out that the property is only zoned as a 3 unit. I spoke with the owner and he said he bought it as a 6 unit two and a half years ago. I'm wondering what could happen if I buy this property knowing it's zoned as a 3 unit even though it is now a 6 unit. I'd be purchasing this property with seller financing. 

That brings me to the second part of this post. If I buy this property with seller financing, would it be possible to refinance with a bank before the balloon payment is due in 3 years? If that is possible, would I run into issues with the fact that the property is zoned as a 3 unit? On top of that, if I can refinance with the bank would it be a commercial loan due to that fact that it is actually a 6 unit? 

Also, as far as the seller financing terms we've worked out, we are doing a down payment of 25%, paying interest only payments and then balloon payment due in 3 years with possible extension to 5 years. I'm wondering what will happen when we try to refinance with the bank. Would the bank be looking at the total purchase price or the remaining 75% we have left to pay? And then would we owe the bank a down payment on that 75% or would they fund the remainder we have of the purchase price since we already put 25% down? 

I've scoured the forums and blogs and can't find any solid information on either of my dilemmas. 

I need to add as well, we want seller financing because we cannot get conventional loans due to lack of 2 years of tax returns. However, after this year we will have two years of TR, so that is when we would refinance to get out of the balloon payment. Hopefully this all makes sense. 

TIA!!