It's a small place so I'd guess it won't rent for enough to cover your expenses anyway so I'd probably sell, especially if the loss is small, it unless it's in a great neighborhood that you think will do well over time. 

My guess is if you can make the interest rates work, there will be dozens of these available in about 2-3 years when the loans start maturing.Good luck and best wishes. 

(Then we’d just start a commune, I guess.)The Setup: Living My Best (Small) LifeI bought a 2BD/1BA home with a private efficiency studio.

Also would charge points at origination and bump the rate up a point or twoReason being my guess is this borrower can it get conventional financing so they are a higher risk.

To support this guess, in the very same (!)

They're not stuck as in "there are no other options", they're stuck as in "there are cheaper, crappier options but we'd have to pack up our entire lives and deal with the other expenses/headaches that come with moving so I guess we might as well just suffer with the increase". 

My guess is its the market.

It's hard to guess how soon regulations will become effective.

That being said, there won't be any down payment required since you have equity (you're guessing ~55,000 but I wasn't sure if you were meaning the property is ballpark worth ~$175,000, or more than that). 

My GUESS would be yes, if you touched the plumbing.