rentral property that you live in? financing? multiple questions.

[Clyde Benfer]

Hello, I have never purchased a property but am looking at buying one this summer and would like some advice/knowledge.

Background: 3 story Victorian house. 2 bedroom 1st floor apartment, 2 bedroom 2nd floor apartment, and 1 bedroom top apartment.

1. What tax issues would I run into if I lived in the top floor and rented out the bottom 2?

2. The seller told me they were willing to carry a mortgage for me. What are the pros and cons of a bank mortgage vs the seller carrying the mortgage?

3. Monthly payments are a combination of the principle and interest rate. Would it be advantageous to ask the seller to have a lower mortgage on the house and a high interest rate such as 25%? My thought process here is that the monthly payment would equal out at a certain point due to the seller carrying the mortgage they get their money either way (they get the high interest payments). The benefit to me would be that I would get a massive mortgage interest deduction. Is this possible? legal?

The seller is motivated to sell due to getting up there in age and has multiple properties they wouldn't mind selling but the seller is very savvy and has owned a few million $ in properties in the past.

Any advice is well appreciated.