Jerome, if you are intending to use the upper level over your garage as an apartment living space, then you'll most likely have to upgrade the structural integrity as a whole to comply with local building codes, especially when considering the location of focussed loading such as a filled bathtub, refrigerator/freezers, etc., plus plumbing, electrical, A/C, etc. To do this, you really should consult with the local building inspector before you commit to a plan and materials. The floor joist arrangement should be constructed for a 40 PSF live, 10 PSF Dead load and for a span of 12' should have 2x10 floor joists spaced at 16' intervals. 2x10 floor joists have a maximum allowable span that varies from 11' 11" - 17' 4" depending on the type and grade of wood used.
Upgrading the joists can be achieved different ways, as note above, but the deeper joists, i.e 10" will provide more rigidity. Regardless of the method for modifying the floor joists, you really should consider the best way to support these joists at their ends. A mid-span wall is great, but the balloon framing is a problem at this point, especially if the outer wall studs are 2x4s.
If the supporting ledger boards of the balloon framing are internal and flush with the inside of the 2x4 wall studs, and the studs sit on a 2x6 or wider sill plate, then you could place another 2x4 on top of the sill plate and perpendicular to the face of the wall stud to form a "T" that the floor joist could sit on top of. If the ledger board is external then the alternative above using 2x6s could be considered as well.Using the 2x4 concept would be less expensive. Either alternative would provide the needed end support. You should review the applicable concept with the building inspector for approval before proceeding.
If you go forward with the apartment concept you might also consider the liability aspect, i.e. insurance(s).
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