For the funds the down payment on the Brooklyn home, we have been speaking to our mortgage broker about options.

I currently have funding from my credit union and SBA loan

I'm going to assume you have separate accounts for your business so you aren't co-mingle funds with your personal accounts.  

@Cameron Belknap FHA loan rules in HUD 4000.1 mention not counting the basement as part of the Gross Living Area; however, part of the FHA requirements found in HUD 4000.1 includes a section on “converted spaces” which states:“The Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided that the addition or conversion space…is accessible from the interior of the main dwelling in a functional manner; has a permanent and sufficient heat source… and was built in keeping with the design, appeal, and quality of construction of the main dwelling.”Furthermore,“The Appraiser must analyze and report differences in functional utility when selecting comparable properties of similar total GLA that do not include converted living space.

If someone had a live(1) deal that needed it in my state I'd do it, but the probability of that happening is sufficiently low that I'd much rather let other lenders waste their time with trying to get to that point.

I was terrified....i wish i had bought more..light fixes, and holds, turn over to prop mngmnt, with right funding in place beforehand is pretty easy..even less emotional than being to much into it involved present...i just suggest don't buy substantial fix, rehab and flip from out of state...and not knowing area or connections...but hold is pretty easy, not so hard, with right agent boots on ground...

Contrary, if you have zero experience then you might want to consider something more simple such as syndication or buying into a note fund. 

@Jim WaltersI am all for buying and holding index funds and just now starting to buy and hold real estate.

Also, my husband especially, would like for us to move into more "hands off" investments even if that means somewhat lower returns.I have seen Delaware Statutory Trusts advertised as a vehicle for investing 1031 funds.

Even if you have all of your ducks in a row and the funds, without the established history of bill pay, you will be kicked to the curb by 90% of conventional lenders.