In Massachusetts there are a lot of counties where FHA will lend this high but for argument's sake, let's explore the other loan type....conforming, conventional.A conforming, conventional rehab loan would required your sister to use 15% down for a 2-unit property that she will occupy. 

@Rudy Bello for a "conforming, conventional" loan the rule is that it does not need to be occupied if you are purchasing the property. 

They do not conform to building and safety codes.

Good morning BPers...Beginning in 2018, the conforming loan limit is set to increase about 6.8% from $424,100.

It may not apply to every deal but still really good information to know:  FHFA Announces Maximum Conforming Loan Limits for 2018

And live in the 5th non conforming bedroom.

Make sure your acquisition targets are conforming to Fannie Mae underwriting standards.

As far as % LTV, if you have ARMs and you’re getting commercial, non-conforming loans you also need to understand the lender’s ability to call the loan or change terms.

So I could file plans to make it conforming only to be told a house like that would look out of place in a nice neighborhood.

@John Moon yeah, 2 main types of loans for what you described:Fannie Mae/Freddie Mac loans - these are "conforming, conventional" loans.