There is such a backlog of homes to be built and still high unemployment which is resulting in a shortage of skilled labor in the housing market pretty much nationwide.

@Agustin FariasI represent a private nationwide mortgage lender that offers a 30 year fixed loan that's fully amortizing.

I suspect the title insurer may have insured your seller and their policy does not have an exception for the outstanding interest. 

To be brief, I am a first time investor looking to invest a maximum of ~40k on a property. (25% down 4-5% interest is probably my best financing option, currently getting pre approved right now).I want to invest local (Massachusetts Metrowest region) however with my budget and financing I would be lucky to find a 1 bd 1 ba condo due to the inventory shortage we see nationwide.

There are a few nationwide commercial providers who entertain these that we work with.

The returns both in terms of cash flow and appreciation on that property have been outstanding. 

Create, incur, assume, or suffer to exist any debt except: (a) debt toLender; (b) debt outstanding on the date hereof and shown on the most recent financial statements submitted to Lender; (c) accounts payable to trade creditors incurred in the ordinary course of business; and (d) debt secured by purchase money security interests.10.2.

If not, you are really going to need an outstanding property manager.

The current supply demand dynamic pretty much nationwide cuts against any foreclosure crisis in the near future. 

The interest would be calculated Just like a traditional loan, both are simple interest....the interest for any given month is simply the outstanding balance times the interest rate divided by 12 (for 1 month of interest).