I'm having difficulty securing traditional bank financing due to large student debt and being a 1099 employee, so I'm just trying to brainstorm.

If your lender is citing Fannie information, that is a traditional loan to your personal name.

If the city could prove that the home was either not lived in for a year or that it was used for any commercial use then they would deny the certification and traditional residential financing would be a lot harder to get.Something else to keep in mind is that if I did change the use of the land I would need to bring the standards of the lot up to today's standards.

Most traditional lenders don't offer this type of product.

Unless things have changed in the new year, there are also some 5% down traditional mortgage programs where you won't have to deal with FHA requirements. 

That being said I estimate there is about 30-50k worth of work to bring it up to the level of the comps in the area.My wife and I are not rich but we have no debt, we have 250K in our retirement, I have a pension I am vested in and we have about money tied up in investments that we can if need be make liquid.I have been working with a mortgage broker friend and he says we are golden to purchase anytime but I don't want to go the traditional route with 20% cash and here is the strategy question.  

Assuming nothing has been upgraded for 80 years it will definitely be a challenge to get tradition DP3 and REIGuard may actually be a good option.

If you compare the actual cost of an FHA with a traditional mortgage with a bigger down payment - the FHA can actually be more expensive because of PMI.

Do you mean refinance with a traditional loan?

I am looking at a property in my area, and I would be interested in doing a lease option or seller financing, rather than a traditional loan.I found the owner, through public records, and I am wondering what the best protocol would be to go about asking him if he would be interested in my proposals.Do I start with the selling agent?