Unless there are conforming bedrooms there that are necessary to hit your ARV, we essentially trade dollars when we finish basements.

You should conform your paperwork according to the manner in which you intend to conduct business which from the facts you have provided is not entirely clear.

There is of course regionalism to mortgage rates, and your personal situation plays a large role in it...but the difference in the jumbo loan rate and the conforming rate is only 1/8th of a point difference in my area right now.  

From your above statements, it sounds like this is acceptable and conforms to IRS tax code?

You can also do a 5% down conventional conforming up to the $477K loan limit and then a 2nd or HELOC to make up the difference in purchase price.

These can be "conforming loans" like FHA/VA for low down payment.If you don't live in it then it's similar but it's considered a commercial loan and you will likely have to come up with more down payment. 20%-25%

Lender has said that earlier in the year, federal regulations were passed that won't allow you to get a conforming mortgage in the name of an LLC.

@Bill Exeter - HI Bill if the previous property on the above scenario was held as a LLC would she need to keep the new property in the LLC to conform with 1031 rules or are there ways around this?

I don't see why you would need Fannie/Freddie approval unless this would cause your loan to be non conforming, so terms may not be good.

The official zoning is C-RS (commercial rural service) but as the home was built is 1919 so it is existing, non-conforming and can be used as a SFH or commercial business.