The lower unit is a basement/guest suite.

The only other option would be to get a coborrower to bring the down payment or get seller financing with a lower down payment. 

It would be a good idea to assess your tolerance to risk and then plan something like that, but using a heloc is going to be around 9-11% in this market so to pay something off with lower interest rate to borrow more might not make much sense.

If you go over budget, you'll be forced to bring liquidity you may not have to the refi closing table.

Properties in flood zones are harder and more expensive to insure, which lowers their perceived value and makes them more difficult to sell.

You could also get a line of credit for about $150k (you should be able to borrow 75% of the value.)The reason I suggest this is…1) you save $40-$60k in selling costs. 2) you have a lower blended interest rate (2/3rds at 3.25% and 1/3rd at 7 or 8% instead of the whole $500k at 7 or 8%) saving you another $1k/mo in interest. 3) you only pay interest on that $150k when you actually use it, not from day 1  Unless you hate this property, or want to buy something you can’t afford without selling, that would be my plan.

This lowered my cost basis per lot by 7k.

Well that is when the lower tenant feels like paying her 20% portion of the rent of $240 per month lol!

In my experience tenants on the lower end of rent tend to cause more damage than higher price tenants.

The next gentrifying neighborhoods in Chicago are: Lower West Side; Humboldt Park, Gage Park, Ashburn, South deering, Hegewisch, Garfield Ridge & West Elsdon.