Banks will have their own overlays on top of the Conventional guidelines for something like this.

Hi all,I purchased a two-unit home a few years ago as my primary residence with a conventional loan, and was told by an accountant that there is no reporting or extra tax forms I need to file as long as my tenant in the upstairs unit is paying less than the total of my mortgage.

That ol' chestnut of "boarder income" can be an annoying hurdle to deal with conventional finaincing.

however - distressed properties aren't typically purchased with a conventional loan; they may not even qualify. 

In Chicago, there are quite a few buildings with illegal garden units, and I thought it might be possible to live in one of those while I'm trying to make it legal with the city but would that be against FHA guidelines or conventional loan requirements?

This is a strategy I've done myself with 5% down payment conventional loans. 

Call your servicer to start the conversation, the terms are dictated by conventional loan guidelines so this will be what is applied:https://servicing-guide.fanniemae.com/svc/d1-1-01/evaluating...

I now have 2 houses both in conventional 30 year loans and i have 2200 a months in mortgages in my name but im doing ok cause im cash flowing pretty positive on the monthly.

You can put a little as 5% down payment for conventional or 3.5% for FHA.Alternative way, is to acquire the 2nd property as an investment property with conventional, while putting 15%-25% down payment.

Here are some specifics:Purchase price: $955KSeller Finance offer: 20% ($190K)Reno cost: $90K Ideally we would like to do a Morby Method where we purchase the home via conventional mortgage or hard money lender and on the back end have the seller lend us the $190K with a second position lien on the property and a 5-year payback.