Mortgage loan (underwritten) + HELOC?

[Jay Maranan]

Hey BP family,

I am trying to come up with a creative way to finance a second SFH I am in the works of purchasing and could use a little input.

I'm currently in the process of purchasing a 3/2 SFH in the Bay Area with a nice size lot (over 7,000 sqft). The seller and I agreed on a price at 1M (home is currently estimated at 1.15M) and since the lot is fairly large, I'd like to add a 2/1 ADU and rent for $2500-$2700 to help offset the mortgage. I spoke to the City Planning/Engineering, an Architech, and contractor and found that the cost of building a 2/1 ADU in the area costs approximately 190-200k.

My (VA) loan has been approved in underwriting at 950k, so I'd have to come up with an additional 50k to buy the house, and an additional $200 for the ADU. My plan was to take out a HELOC on my first SFH (about 250k in equity) to fund the ADU, but after speaking with my lender and a few other banks, it doesn't look like I will qualify for a HELOC since my debt to income would now more than likely be over 45% with having two mortgages totaling in about 1.6M, though my first SFH mortgage is taken care of by the renters.

I imagine these numbers may be high for a lot of folks, but this is the Bay Area for you. The reason I want to live in the Bay is because I have kids and all of my family is here. That said, this would be a long term play: buy and hold/fix and flip/ and partial house hack. My question is has anyone else been in a similar predicament (minus the numbers) to where you had funds/equity in one property, but couldn't necessarily get to it because of debt to income ratio, and/or other similar blockers? If so, how were you to move forward? Were you able to take out a HELOC/refi with over 45% DTI? If not, what other ways did you come up with to get funds?

Any info/input would be appreciated! Thanks in advance and hope everyone is staying safe out there!