$750 is insurance greed pure and simple.  

Both of these loan programs are conventional financing, and with less than a 20% down payment, you would also receive a reduced mortgage insurance rate. 

The house rents for $850/mo, and I think I could push it to $950, give or take - but the debt payments (30-year loan at 4.75 or 5%) and taxes and insurance would take up all of that, leaving nothing for renovations.One alternative I’ve pondered would be to secure it and then seller-finance it to an owner-occupant.

I tell tenants to deposit into cozy 4-5 days before the 1st to insure timely payments.

A $680k mortgage (let's assume they had 20% down) plus taxes and insurance is going to be somewhere around $5k per month.

I included a monthly insurance of $120.

This morning I called my insurance agent, he was most cooperative, he called the local police to get a case number and said this is by now a famous incident!

Everything else is in order, except that the building owner has refused to allow the insurance company to add the lender as an additional loss payee (which as I understand, is both required and standard by lenders in order to be able to loan).Are there any other options here?

.- At closing:  Down payment, points, other lender fees, prepaid insurance (most lenders want you to prepay for either the length of the loan or a full annual payment), prepaid interest (usually interest till the end of the month), and standard closing costs (from your closing agent). 

As long as you are closing at a title company with title insurance, you’ll be okay