OO loan seems like real long shot. 

But that extra $7200/year will go a long way in paying down your loan faster, build up another downpayment fund, pay off other debt, etc. 

You could use a HELOC, but with VA loans you have an allotment so you can get loans on more than one home depending on how much bandwidth they give you.

Assuming since you did any FHA loan, this was a househack?

They will continue to get 360 month loans for the 'cash flow'.

If it is a good business with a hard to finance issue, he'll work with the loan team to figure out how to lend to them.

Your answer needs to make sense, and be true.Also refi'ing your current primary into an investment loan also has the potential to be fraudulent if your family still occupies it as their primary. 

Option 1: The loan that the owner has is an assumable loan at a 3.875% rate and still has about $265K.

I am sure the interest in that hard money isn't great.All DSCR loans I have seen require at least 12 months.

I would pull a FHA loan for $665,000 and live in one side and rent the other side out to a family member for $2,000 a month.