Having said that, I still prefer the standard contract as it conforms to state law, and is designed to be fair to both parties, and covers a lot of the "what ifs" that can occur.  

It's definitely non-conforming.

for owner occupied conforming loans it seems the rate difference between 5/1 and 30 yr fixed is ~.75% -1% ( I am talking about no-point no fee)I was thinking the same differential will apply for non-owner occupied.

for owner occupied conforming loans it seems the rate difference between 5/1 and 30 yr fixed is ~.75% -1% ( I am talking about no-point no fee)I was thinking the same differential will apply for non-owner occupied.

There is potential it could change in the future with the city plan, I could try to get a legal non-conforming letter from the city if its applicable and/or try to rezone it but what if I'm not approved?

Also, you could do ask your real estate agent if they have any good lending contacts, you could probably get a non-conforming loan with a local bank.  

This duplex was converted before zoning laws took effect in the area, and was grandfathered as a legally non conforming structure, listed as a duplex. 

You can get into a small multi-family like this using a conforming fannie/freddie loan meant for a primary residence.

@Dwight Cook I agree with Colin the cost seem super high, I can only imagine it being that high if the loan is non conforming which sounds like they may be doing that, one strategy is to offer a higher purchase price in exchange for higher seller credits, this is no cost to you or the seller except your loan will be larger, also look at taking a rate where you receive a credit, you can make this work if you have a low enough dti with the two loans and you can pay the full down payment for both the rest is just a matter of negotiation and creativity

To get a conforming loan there isn't much around this.