("I understand your in a difficult position and I truly believe I'm in a position to help you out. 

My agent said that it's difficult to find decent homes under 100k that meet the 1% rule. 

I am sure the text for what one can and cannot do from the IRS and any other governing bodies is long and difficult to totally understand and may be open to interpretation - I know many things with the IRS are.  

A balloon mortgage that does not fully amortize over the term of the note, leaving a balance due at maturity, so placing those extra investments (7,000 extra payment) in a better place would be more beneficial for you.

Otherwise, in the event of an audit, you will have no proof of their status and they may be difficult to contact then.

Just dug myself in quite the hole through some difficult times.

Studying that area in the past performance of home values can help you predict the future but it is still a little difficult. 

I think the difficult thing for many people is health insurance, especially if you have a family.

I felt terrible and awesome, what I had for a down payment for a house ($2k) I completely wiped out my balance off one of my credit cards.

I purchase my 2nd primary residence and there was about 4yrs of back dues, granted they were only a fraction of what you are dealing with but they just forgave the balance on mine.