If your LO can't quote guidelines (and when I say that, I don't mean "just" the lender overlays), you should probably branch out to someone who can for a second opinion, at the very least. It's important to know the difference between the guidelines and a lender's overlays.
If you're putting down 25%, this is a doable deal by any lender who doesn't have an overlay to permit a non-occupying co-borrower transaction on a multi-family properly (Two of my previous companies prohibit this though a few lenders out there will allow this still, my current company included).
The guidelines directly from the HUD handbook:
Here's the copy/paste of a HUD letter (easier to read than straight guidelines):
The purpose of this provision is to enable a family member to have a joint interest in a property that would enable another family member to attain principle residence homeownership.
All borrowers regardless of occupancy status must sign all documents relating to the purchase of the property. This provision is not intended to circumvent FHA?s ban on loans to private investors. Mortgages with non-occupying co-borrowers are limited to one-unit properties if the LTV will exceed 75%. If a parent is selling to a child, the parent cannot be the co-borrower with that child on the new mortgage, unless the LTV is 75% on less.
For maximum financing the non-occupant borrower must be related by blood, marriage, law or be an unrelated individual that can document evidence of a family-type, longstanding, and substantial relationship?not arising out of the loan transaction.
Non-occupying co-borrowers must have a principal residence in the U.S. unless exempted due to military service with overseas assignments, or a U.S. citizens living abroad.
Additional direct references:
4155.1 2.B.1.a Types of Transactions Affecting Maximum Mortgage Amount
ï‚· properties with non-occupying coborrowers
When there are two or more borrowers, but one or more will not occupy the
property as his/her principal residence, the maximum mortgage is limited to
75% loan-to-value (LTV). However, maximum financing, as described in
HUD 4155.1 2.A.2, is available for
ï‚· borrowers related by blood, marriage, or law, such as
ï€ aunts-uncles, and
ï€ nieces-nephews, or
ï‚· unrelated individuals who can document evidence of a longstanding,
substantial family-type relationship not arising out of the loan transaction.
4155.1 2.B.3.d Restrictions on Non-Occupying Borrower Transactions
If the LTV exceeds 75%, a mortgage with non-occupying borrower(s) is
limited to a one-unit property.
In english, you can go to 96.5% on a purchase with a non-occupying co-borrower for a one-unit property.
If you need additional help with guidelines, you may email me a short question.
I hope you're still able to close on your deal!