Refinance into a conforming loan as an owner occupied.

You'll have headaches trying to get this to conform. 

mortgage broker is not going to be able to bend the underwriting guidelines unless you go to a local commercial bank or credit union were they make their own rules.. if your looking for the least expensive debt that is conforming then all brokers fish in the same pond when it comes to underwriting criteria... don't let anyone hit you with pie in the sky ask for money up front promise you the moon then not fund.. lots of that going on right now on BP

The more you deviate from the above workflow, the less your transaction conforms to the legal description of an assignment.

The only way to get it to conform is to solve...The water problem: Both are on one water/sewer line, so new lines would need to be run ($15-20k rough estimate) to split the property, which we would need to do to refinance to two separate 30-year fixed mortgages or to sell the houses separately.Options, as far as I can tell:Buy and hold with ARM and pay adjustable rateA bad idea?

I have a 1920's built 2/1 house that is zoned C-1 (general commercial) with a "con-conforming" residential use.

i...)In my experience you will have to finance it as an investor on the conventional side as well since the lease is for six-months or longer.The only out might be to find a small bank that funds its own loans and have them portfolio the product for the next six months until you actually move into the property at that point it would become a conforming loan and they would sell it to FHA.

Above someone mentioned conventional with 5% down which is true but thats only for conforming loan balance in LA county of 417k or lower while 2-4 units will require 25% down.There are some niche programs for conventional that are 5% for 2-4 units but the MI company will not insure the product so it cant be done until a MI company is willing to insure.FHA 3.5% down will be the best option for 2-4 unit property in LA if that is your main objective.Depending on your income you may need to use the rental income from the other units to qualify as well.

Finally...there are trade-offs to be made in order to conform your investment to your goals.

It's important that there be only one investor and one loan in order to conform to the DRE regulations related to fractionalized notes.If one of them doesn't have enough money to do the deal by themselves, you can engage a private money broker with the proper licenses to arrange for two or more investors to do a fractionalized note, you just can't do it without the properly licensed person.Another way to structure it is as a private placement.