New Member in a pickle with a guest house

[Joel Knutson]

Hi Forum,

I've been dabbling in investing for the past 5 years.  I moved and kept my former primary residence as a rental.  

My current primary residence has a garage that was converted into a 1 BR guest house decades ago.  The main house is 3 BR 2BA and is far enough away from the garage that you could never connect them.  We got it financed as a single family property as the guest house was put down as storage on the appraisal.  We fixed up the 1 BR guest house, and it is currently being used as an Airbnb.  Making good money, too.  

Recently I've been contacting banks for a HELOC, and they told me I will never get a loan on this property because the 1 BR has it's own mailbox and electric meter. Those were both in place when we bought the house. I've talked to 3 mortgage professionals, and they have all told me no HELOC is possible because I now have something considered to be a multifamily property with a primary loan on a single family property.

My goal is to take out a $25k loan to pay my mortgage down and get out of paying PMI. Am I stuck with no possibility of a HELOC? How could I ever refinance or sell this property? I estimate the property is worth about $350k and I owe $210k.

[Dave Foster]

@Joel Knutson Traditional FHA financing would still be available to you I believe (the mortgage pros can confirm that) so I can't see how you would ever have trouble selling because of that. Your issue is that you can't get a heloc.

But I gotta tell you - to decrease legal density just to get a finance instrument seems incredibly short sighted.  There is huge value in that mail box and electric meter!