FHA loan.

should a private lender ever ask for a 1% insurance paymentBefore completing a loan?

In 30 years the balloon payment is due to the seller and that's when the taxes are due.Coupling a monetization loan to an installment sale accomplishes the same thing but puts cash in the sellers hands that can be re-invested.

Investment Info:Condo private money loan investment.

Loan terms seem reasonable.

It sounds like the issue is with the Debt Service Coverage Ratio (DSCR), which lenders often use to determine how much they’re willing to loan.

From my experience, when I dive into the costs associated with building an ADU—including construction expenses and financing options like hard money loans—it often doesn’t make financial sense.

Ken, I would prefer to do that, but I wasn't sure if any banks would offer that type of loan or line of credit.

Buyers could look at a DSCR loan which does take into account the revenue from the rent but it doesn't count towards the value of the property.Now, buyers could look at a business loan of some kind but I am not sure they would qualify if it is only one property and even then, the value is mostly in the property and not the possible revenue. 

Quote from @Robby Sanchez: can you refinance at the end of an interest only loan into another interest only loan?