I would think their loan documents give them the right to control the property after the original owner dies - regardless of who is living there (although I have no direct knowledge of the laws where you live).There are details we don't know here... like if you want the house for sentimental reasons, or because you see the value between what it's worth on the market today and what the reverse mortgage company wants for it?  

The main reason I ask is because that is significantly below primary residence mortgage rates let alone any investment loans, if you can get rates like that I might need to make some changes on my end hahahTo answer your original question, assuming all else is equal long-term fixed rate debt is valuable. 

Since the original loan remains in the seller’s name, you may need a nominee interest allocation to deduct mortgage interest, as the Form 1098 will likely be issued to the seller.

I reach out to the original borrower and ask them what’s going on.

If you sell your property, the tax basis (original cost) of the property for the giver becomes the tax basis for the recipient.

The factors to consider are your overall objectives, your credit score, DTI and personal financial condition I recommend you find a broker or originator whom you can trust and have them weigh your options.

She originally asked for 2 balloon payments.

Let's use that as an example. 20% down is $43,000 plus lender loan origination fees, closing costs etc is going to push you over $50,000 cash out of pocket.

Ok, so I see this might have been a design flaw in the original build so there isn't much you can do unless you rip it all out.You could have it all scoped and see what's what so you can get an idea of what you are dealing with.You could comp the guests a night.

@Stacie TellesMost lenders have a seasoning period (typically 6-12 months since the original loan), so check with your current bank or shop around for others.I would also watch out for prepayment penalties on your current loan.