You can speak to the lenders you are talking with about their debt to income etc. if you are getting conventional loan they will take that into consideration, if you go with a DSCR loan they look more at the metrics and financials of the property.

You can look at individual loans (conventional or DSCR) or as a portfolio.

Conventional financing for fractional ownership---who is gone mainstream with this type of financing?

You can put a little as 5% down payment for conventional or 3.5% for FHA.Alternative way, is to acquire the 2nd property as an investment property with conventional, while putting 15%-25% down payment.

All 16 units would have to remain on same lot/deed forever (so in terms of value, I can’t capitalize on the duplexes being sold to conventional non commercial buyer) think financially it would be nice to phase it out one duplex at a time.

Don't be discouraged if there is a lot of push back from sellers or agents at first, many of them aren't familiar with seller finance deals or have situations that can't be solved with seller financing (for example, as was mentioned above, they may need a more conventional offer to pay off their house and buy another one).

AND you can know put as little as 5% down on a conventional loan, which is a better loan anyway if you can manage the extra 1.5% down, does NOT have this test for 2,3 or 4 unit buildings. 

It's since been resolved4) I had planned for 2% Closing Costs, but the Closing Costs are actually 5.3%, which is quite the chunk of change that I was not planning on.  5) I also had found out 3 days ago that this was a DSCR loan, not a conventional loan.  

They recommended we do the conventional loan, what are your thoughts on the process buying a multifamily with conventional loan and just start renting all the units out.

Remember, you can put as little as 5% down on a house, duplex, triplex, or fourplex with a conventional loan.If I were you, I'd speak with a lender about your financial situation to understand what your budget actually is, then look for an inexpensive duplex.