Nobody wants to deal with the risk for lender stipulated repairs a week before closing.

@Mary Jay let your agent know you will sign a listing contract for one year but you want specific language that it can be cancelled at any time with no stipulations.

For reference, FHA actually allows for mixed use with some stipulations, which surprises most people.

Any suggestions out there on how to execute the much-better strategy of separate Condo sales despite the 50% stipulation on the hypothetical fire situation?

You can lower the rent to what she can afford with the stipulation that you can show the place to prospective tenants and give her a reasonable notice to move once you find someone.

The only stipulation was we needed a signed lease, which given your situation shouldn't be hard to get from your parents.  

Take a look at the definition of Insured in the Conditions and Stipulations section. 

They said this is their latest stipulation for a primary mortgage because of the virus. 

Does anyone know whether there are any stipulations that would prevent me to turning that home into a rental property?

I find it a bit highly priced psf (370 psf) but reasonable based on tenant profile and ROI. its basically 7.1% ROI of a national dental chain in Southfield MI paying about 25++ psf with escalations and 7.8 years remaining.Since this deal is clearly predicated on tenant strength, one of the stipulations I requested for prior to executing the s&p agreement is to allow for a tenant interview and to review tenant financials to assess likelihood of tenant renewing.