This is the first time a note was paid off by the borrower. 

So I keep hearing their are loans for self employed borrowers that don't require 20% down but I have yet to find one.

Some will require the borrower to have some cash in the transaction to keep the borrower from walking.You just need to talk to the lenders to find out their terms.

I have two financing options:Method #1 is a conventional 30 year mortgage @ 3.87% interest rate with 25% down on a MFH Method #2 is HELOC loan that I can get at 3.5% interest rate by borrowing up to $180K or 4.24% rate if I was to borrow $230kMy dilemma here is which method makes more sense in general ?

There is also risk of divorce, bankruptcy or other unexpected life problems, so you need a contract to protect yourself.I would have suggested loaning him the money, but most mortgages have requirements that down payment cannot be from borrowed funds.I am honestly surprised that he can't do this deal on his own.

To clarify, FHA is only for owner occupied borrowers. 

Company B stated they could give me a 2.99% with the same amount down (25%), same length, and I could borrow more money.

Value 500kBalance 200kLooking to borrow 400k for 200k cash out 750+ credit and very low DTI30 yr fixed Thanks I’m advance

It looks like it would be very easy to sell and use the proceeds for the remodel (this is what my non-RE investors and parents tell me).I see renting my old house as a means to pay for my new house's mortgage, while also having equity to borrow for the remodel and future investments.

✓Second Home Requirements must be occupied by the borrower for some portion of the year is restricted to one-unit dwellings must be suitable for year-round occupancy the borrower must have exclusive control over the property must not be rental property or a timeshare arrangement1 cannot be subject to any agreements that give a management firm control over the occupancy of the property must be underwritten in DU and receive an Approve/Eligible recommendation, with the exception of high LTV refinance loans required to be underwritten in accordance with the Alternative Qualification Path (see B5-7-03, High LTV Refinance Alternative Qualification Path).