With all due respect to any who may disagree, as regards downpayments, contractors are not lending institutions; just like no one buys a car without a downpayment.

To make everything cleaner, you would want the financial institution to report the interest under your SSN or entity's EIN (TIN).

I would suggest that you have her call, or you can call for her, and see what tax break, if any, they would offer to her and how she could go about instituting that discount.

The water and fire damage, as someone already posted, would probably be caused by as many tenants as by acts of god if you instituted something like that. 

Most of the institutions I am aware of will only fund about 80% of the sales price on an investment property, so if you found a house you could buy for $100k you'd have to have $20k down plus your closing costs. 

I work in real estate, but am used to looking at larger, institutional industrial deals.

Can you elaborate more on the deal, who is the seller, individual or institution?

"Federally related" that will be consumer loans sold in the secondary market, GSE (fannie, freddie, FHA, VA, USDA, HUD programs) mortgages as well as any loan from an insured institution, so any bank loan is federally related. 

Reading these guys books really helped me get a decent foundation from an investing perspective when I jumped into multi-family.This one here from the Appraisal Institute is really great too. http://www.appraisalinstitute.org/the-valuation-of-apartment-properties-second-edition/Good luck and go get 'em!

The suit between your buyer and another lender may carry a bit of concern with another lender too, the nature of that needs to be known, if the institution lost and was clearly involved in some illegal or bad practice, it may be overlooked, if there were contributory issues on their part and in the end, they won, it may be viewed differently.