HELOC vs Second Mortgage - for rehab - need some expert advice!

[Phil K.]

I have a family member who owns two houses, free and clear - no mortgages and no HELOCs.  

The cheaper house, "House A", is about three times the value of "House B".  Both houses serve as on and off again rentals.

But now, she considers "House A" her primary residence though she lives with her husband who owns his own house.

House B, is due for some major rehab expenses - needs new plumbing and piping to city water - approx $20k

In order to pay for the rehab expenses on House B, she recently spoke to a bank who advised her to get a mortgage on House A, furthermore the bank informed her she could not get a loan on House B, since it was an investment property.

It seems the bank wants her to get a loan on the more expensive property (as collateral) to cover the costs of the least expensive property.

Questions:

1. Am I wrong to advise her to go to look to other banks and that she should be able to get a HELOC or mortgage on the property that actually needs the rehab work done?

2. Should she pursue a HELOC over a mortgage?

[Kerry Baird]

It seems to me that the issue is one property is owner occupied and considered to be lower risk, while the other house is non-owner occupied and is considered by the lender to be higher risk.  

Next thought is that it is challenging to find a HELOC on an investment property.

She should be able to get a 30 year fixed mortgage on either house, which is preferred.  HELOCs are similar to having a credit card affixed to the house.  They adjust and can be called due, which can cause problems as one never knows what interest rates on long term mortgages will be, The Federal Reserve has been announcing rate increases, so long term fixed rate interest continues to be in demand.