Hopefully more experienced property owners and land lords will chime in, but here are my two cents....
- I wouldn't have a problem with doing an owner occupied loan with my grandma if she was up for it. I would still treat it like a rental with respect to taking care of the mortgage payment, taxes, insurance, maintenance, etc... Grandma would just make the agreed upon "rent" payment and I would take care of the rest.
- I would make sure that she has a will or other form of legal documentation stating that when she passes on, full ownership passes to you and that the property is not to be considered as part of her estate (assuming there is much to be worried about). It would be a shame for any of her kids or your cousins to assume the house was hers and that you are getting a good deal out of it.
- You might be able to avoid the whole ownership problem if you can get the house titled only in your name. The loan would be in both, but legally you would have sole ownership. I'm not 100% sure this is possible. Seems like when I purchased my first car, my Dad cosigned the loan, but it was only titled in my name. I know houses are vastly different than cars, but it might make things easier. We've done sort of the reverse of this as I've applied for loans by myself as my wife is a stay at home mom and I have a higher credit score, but when we went to close we've had the properties titled in both our names so if something were to happen to one of us it would make the legal stuff afterwards a bit easier.