What I am trying to get my arms around, is the pros and cons of the deal.

When holding hard money can you refinance into an ARM?

Because it will arm you with the knowledge that you need to be confident in the industry you sought out.

Loans for investment properties are not eligible if the transaction includes non-arm’s length and/or at-interest characteristics5.

My guess is it has to be an arm's-length transaction but I am no VA loan expert.  

I haven't found one that would do that in the Bay Area.2) the bank will likely frown upon the sale as this is a non-arms length transaction with a sizable  price mark-up.Good luck. 

A good place to start with your agent,  would be how your two's relationship fits in to the banks arms length agreement you will be required to sign at closing.  

Assuming on "bank 2" it's the "spread" and not the actual "rate" that's fixed for 15years, which is just another way of saying an ARM, I don't like the interest rate risk, and I personally would go with loan #1.

I originally figured I would wait to refi when the ARM adjusted to a higher %.

Would love to hear who people are using for tenant screenings.Also, how do you guys feel about ARM loans for a buy and hold investor?