When the livable rehab was done, I refinanced the loan and enclosed the concrete patio into the tiny cottage with another contractor for $12,000.  

Hopefully after 12 months seasoning, the DTI will be acceptable just based on your ordinary income.

If there is anything out of the ordinary, they may ask for more. 

The reason for my confusion could be that I read another thread where it was the Reverse Mortgage Institution who was selling the "Owner"-Occupiers property, and the responses there suggested that was nothing out of the ordinary, since the Institution was already paying out that Owner per their reverse mortgage arrangement, and could continue to do so even if THEY sold the property to another party.

Normal additions like what you're trying to get quotes are from 120-200/sf out the door, at 200/sf, you're in the high part, that's 80k, allowances for extra ordinary fixtures shouldn't be above 5k.

Hi Joshua,I would like to invite you to the next BP event in Portland, more info here.On October 11th people will be meeting on the outside covered (and heated) patio at Fire on the Mountain at 3443 NE 57th Ave, Portland 97213 to discuss real estate topics and the booming Portland market.Hope to see you there!

The landscaping needed work too, I removed scraggly and overgrown bushes/trees, put in two block walls, a patio privacy fence, lots of work on the grass.  

Between ordinary income tax + 10% IRS early withdrawal penalty, you could be giving up somewhere around 40% depending on your bracket.

Also the home is what is referred to as a "patio home" to where it is actually detached from the other ones.

These are commonplace for virtually any ordinary home purchase in general.