And per a recent conversation I had with @Andrew Postell - you may be able to do even higher; though I would caution about the impact on your cashflow.If you don't already, be sure to get out to a number of networking events. 

Estimates cost you nothing and allow you to decide with your CPA/tax professional how it would impact your tax situation.  

What would be her most viable option after afterwards with the least financial impact?

This is not a common loan, and essentially allows you to use equity in that paid off home and repay it over the course of 20 years (if I remember correctly) and then it locks into a fully amortizing mortgage.  

The new bigger house we would hack, and we'd essentially keep our current comfort/lifestyle while covering a good portion of our mortgage with renters. 

They may not be okay with the property essentially being 100% financed.

So essentially you buy a fixer upper and renovate it but within 60 days you have to occupy the residency.

Essentially got my start a few years ago, purchasing a single family home, putting some reno love into it, and getting a tenant.

The commissions are usually paid by the seller (and built into the sales price so essentially passed on to the buyer that way but technically debited to the seller).

After the sale took place, escrow refunded the deposit to the original buyer, and I took some of the proceeds from the contract sale and added to the refunded escrow amount, essentially doubling his investment in one month, an incentive for leaving the escrow money with escrow another 30 days.