@Adam Drummond this post is designed for the "conforming, conventional" loan types that face this 6 month cash out restriction. 

It can't have any more guest rooms than it already does and the commercial use loses its legal non-conforming status if the main residence isn't occupied by the property owner or an onsite manager. 

Since DSCR prices differently (non-conforming) the changes will be different. 

Would the use be legal but non conforming?

A professional is someone that conforms to technical and/or ethical standards of a profession.

@Jeff StevensonYou really should consult a qualified professional or two, specifically at least attorney.So far, your lender is correct that legal entities, such as LLC's, are not eligble for conforming residential loans. 

Any updating on a non-conforming space will not count towards ARV on a refinance.

I don't think its necessarily cut in stone, especially since they aren't conforming loans so its basically unregulated. 

They likely have plaster walls, nothing conforming to current code of course, but not illegal either, and rough basements.

. - sophisticated value adds: development, TIC/coop, take advantage of localized regulations (2 off the top of my head: San Jose lot split for ADUs, San Diego city unlimited ADU count in existing conforming building), etc.