I agree that this definitely sounds like a crazy scenario, though there is a lot that we (and probably the OP) don’t know. Such as how much the family has saved up. And if they really will have a large mortgage, or will somehow buy the house without one. Or how much the rental income will cover their costs, which affects whether this is even possible, and what their future declared income will be.
This is not to say it won’t all affect the financial aid–it almost certainly will–but it’s hard to even tell what the real situation is.