We have a contractor that is willing to do the work on the house with a down-payment and get paid the balance upon closing when we have our buyer.

Plus you will come across more deals or pocket listing you might be able to jump on in terms of good deals.As far as a 40 hour work week and investing its "Easy" you schedule your time wisely work, life balance, and REI searching at night.

BUT if it gets your deal done with less cash out of pocket, might be worth considering a higher rate until you can build some more equity/ pay down some of the balance, and the refi into something more reasonable in terms of rates.

My proposal is to assume the mortgage and offer her a note for the balance (10yr interest-only, 30-year amortizing), and I would be looking to refi the original mortgage at some point in the not-too-distant future once I have fixed the issues with the property.My questions are:Will my future lender learn the terms of the seller-financed mortgage by my declaring it on the loan application, or do they have some independent way to learn of its existence and its terms?

The balloon on all properties comes due on the 61st payment and the seller will be paid the balance.

What is a healthy balance of leverage to have?

There are less on the market, so it seems to be balancing out fairly evenly. 

The contractor is now telling me I owe the final balance or he will send me to collections.

I had to pay another contractor to finish the job they botched.They are threatening to put a lien on the property for the balance owed, yet there's no balance owed since they didn't finish the work.

Especially on the balance sheet.