Traditionally a second home that you plan to be at part time has been treated differently from all other investment properties.

Yes forget about it, and in fact treat those properties as properties you MUST avoid!

You're better off getting a good HVAC vendor that will treat you right and get the job done.

Their position is, there's no rental agreement and you haven't been treating it as a rental on your tax returns, so they're not considering it a rental property and not considering anything your family gives you as rental income to offset the mortgage obligation.On the general point though, the new lender's proposal of taking a bigger primary residence loan and paying off your second home, yes I think it would benefit them (bigger loan amount and more interest), but I also think it would benefit you.Think about it this way, right now you're paying 4.5% on 67K and 5.25% on 180K, or over 12K in interest a year.

Instead, they are treated as suspended losses from a former passive activity [Reg. 1.469-9(e)(2)].

I would definitely treat your question as 2 parts.  1) how do I pull out cash from equity.  2) how to best buy a second property. 

I wouldn't expect much cash flow here but if that isn't the primary concern rising prices, rising rents and prop 13 should treat you reasonably well.

$1K is fine, $2500 might be better.... depending on what kind of reserves you have and how to treat insurance. 

Personally I would trust tenants with an excellently trained animal over a tenant w/o one because the level of responsibility proves to me the tenant does not take owning a pet likely and would treat the rented space with respect.

I've always thought this was fair and how I would want to be treated if I was the tenant.