Speak to a lender, lots of options for 2 units with fha, conventional and conforming and nonconforming. 

I actually wrote a blog on this very topic of non-conforming lots.  

If listed as a 2 unit the basement is likely legal but "non-conforming". 

Is it legal non-conforming (grandfathered)?

The max LTV for a conforming loan cash out on an investment property is 75%.Hope this helps.

This done in conformance with State and local statutes (Not sure if you have these). 

There are still so many unknowns on how to operate, that it still seems like a wild-west of sorts, with no conformity, other than at the 20000 feet level.I am still trying to figure out answers to the questions i have posted, hopefully some other members can chime in, but I will post my own progress and findings as I go through it myself, so it can hopefully help others who are starting out and I know will have the same questions as I do now.

And there's a rule that if I got an OO loan, I must live there a year to be in conformity with the rules, even though I lived there already for 10 years.

Out of all the banks I've shopped no one can touch the local Prime Meridian Bank as along as they are 4 units or less and you are getting them as conforming residential loans.

I don't know the size of the house or the extent of the renovations needed, but if you can minimize what needs to be done to make it habitable, and keep the loan amount to conforming limits for your area, you could use a Homestyle Renovation loan to purchase and rehab the property.