Will they base their calculations solely on the income from the two legal units and disregard the non-conforming basement?

There are way better people to talk to that are based out of here and know the market like the back of their hand. 

Just an FYI to everyone like @Tom Dieringer said, this is a base contract for anyone who wants somewhere to start.

With the HELOCs now set, we are curious as the best way to approach getting pre-approved for our first property while we search for the right fit.

Other areas constantly threaten to curtail the ability to use homes for str whereas sevier county is based on the rental of cabins and they have zoning that can never be rescinded to guarantee it. 

These are just guidelines and may need to be adjusted based on your property's location and class.

But to date, I've just set my rents at a rate that accounts for me having to pay the water bill - and informed the residents that each year I'll increase the rent based upon my expenses (including water), so keeping the bill down helps me to help them.But one problem this could cause is if increasing the rent to cover the water bill then places your rent above the market rate.

DSCR will help if you are tapped out of conventional loans and you don't qualify for a traditional loan based on your personal DTI.

If you sell a property, capital gains tax applies based on each partner’s ownership share, and a standard 1031 exchange won’t work if proceeds are split, as the exchange requires continuity of ownership in a like-kind investment.One strategy is a drop-and-swap, where the LLC distributes the property to partners as tenants-in-common (TIC) before the sale, allowing each to complete a separate 1031 exchange.

If it came before the counsel, we'd be able to argue with a pretty strong case based on the dual-use of almost the entire neighborhood.