Financing & Zoning Issues

[Morgan Reinart]

We've made an offer on a 2/1 home in Oklahoma City, and the seller has accepted our offer of $190,000. The house also has a detached garage with a 600 sq ft 1 bedroom apartment and a 300 sq ft studio apartment. I'm trying use a conventional mortgage through a local bank who has financed all three of my SFR and our primary residence; however, I'm running into issues;

1. The property is zoned R1 single family residence only. The home was built in 1925, and the seller believes the garage was built in the 50s or 60s. 
2. The City of OKC has the property as one unit, not acknowledging the two units in the garage
   1. They may or may not be grandfathered. Code Enforcement is highly unlikely to issue a citation, but if ever issued a citation, it would be my responsibility to prove the property has been a separate residence pre-1950 code
   2. If the garage is ever destroyed by fire, tornado, etc., we could not rebuild the the apartments without a variance. 
3. The underwriter cannot commit that the property is okay to go to secondary market because of the zoning issue. 
4. Instead of the 10% down $825/month payment I was anticipating, the local bank has offered two solutions
   1. 15 yr @ 5.75% of $1420/month - deal doesn't work at this number
   2. 10 yr/20 yr am with the rate fixed at $1,187 with a balloon payment at 10 year - deal doesn't work at this number either. 

Does anyone have suggestions on how to make this deal work? 

We are using it to house hack our way into the urban core of OKC, and this is the second deal we've come across the same issue. If we can make it work, we live nearly mortgage, tax, and insurance free with a ~11.5% cash on cash return after we move out.