I suspect that your LO was probably pretending they didn't know it was a duplex w/ an ADU, as that would have been an automatic decline, no questions asked, no matter your income, DTI, or credit.In order to make this property financeable with three units (one you live in, two that you rent), I'd suggest talking to the city/county about getting it formally rezoned into being a triplex.

We went to the 3rd bedroom, and lo and behold, a steaming pile of poop from her dog in the room. 

As far as that LO asking you to pay a fee to get preapproved as a TBD-I  would follow what everyone says already-go to a differerent lender.

Anyway, our plan was to either a) buy a lower priced reo in need of rehab with just our HELOC, and then refinance into a conventional loan after a bit, or b) buy something with a conventional mortgaged and use the HELOC as our down payment - which would lo likely only be about 15% of our HELOC limit any anyway.

Hey @Nick Burkhardt, I just PM'd you the LO contact for that FHA 203K or 203B renovation loan that I promised you yesterday. 

I worked with an LO who closed a loan for a guy in a similar situation. 

So, simply tell your LO you are getting a gift from your father and she will give you a gift letter for all parties to sign and you are on your way.

What about evicting issues if they default on a LO?  

I am not very happy with them for 2-3 reasons...V - - E - - R - - Y - -     - - S - - L - - O - - W - -....  

As mentioned, if you get sick if it and just want a solution, call your go-to LO and just have them order an appraisal for a phantom refi through the 'normal' channels.