As others stated, if the existing structure is legal but non-confirming that should not be an issue.

This is why I always hate on big banks for mortgages - while this kind of thing is not exclusive to them, it tends to happen with them at a much higher frequency.

Not sure the final outcome, but I'm guessing that is a case where you think things are risk free, but I expect the purchaser was out significant legal fees that were not reimbursed and ended up not getting the property.I've always thought about this in the rare instance that a super nice and super valuable property goes to sale with a mortgage on it. 

You can take yourself out or severely set yourself back if things go awry.I've bounced around the investment mortgage industry for 5 years. 

If you buy pre-existing, you'll still be looking at 400k or above.  

I have just over $200K left of owner-financing, but I'd like to obtain a cash-out mortgage/loan of $500K (ideally) to be able to pay off the previous owner and make some repairs, etc. 

A 1031 exchange is NOT available for owner occupied property so that’s the bad news.The good news is for owner occupied primary residences, for married couples, the first $500,000 of pain is tax free.No need to worry about a 1031, live in the house, sell it, use the $500,000 exclusion and you pay KP tax on whatever profit may exist,2.

In some states it's better to write a full mortgage because the foreclosure timeline is short or because the municipality will not treat the buyer as having equitable title otherwise.

., Honesty is the most important aspect in mortgage lending. 

The worst part is that it's usually way too easy to get your license, and the consequences for these sleazy agents are usually non-existent or not harsh enough.