Primary residence becomes rental property

[Samuel Vogt]

I purchased my first home in 2014. It was listed as my primary residence, but has been an investment property for the last 2 years since I had moved in with a friend.  At this moment I am looking to purchase my next property, and trying to be strategic about financing.

I met with a small portfolio lender today to get some numbers and see what financing might look like.

My original strategy was to do a cash out refi and roll my equity into the next property, hopefully putting 5% down and having my next property be my primary residence and house hack (Duplex/Triplex).

But the mortgage officer/branch manager, said that my next mortgage wouldn't qualify as my primary residence, and that I would need to do an investment/commercial mortgage (I couldn't remember his exact terminology), unless the first one was paid off (which sounds crazy to me).

He suggested that I use cash for a downpayment on my second mortgage (which would have to be 20-25% since its an investment property), and do a HELOC on my first mortgage, for repairs or if I needed a little to cover the downpayment.

I am sure I can go that route, but I wanted to get the BP community's thoughts and advice if there is a possible way to get this second mortgage as my primary residence. Or should I just bite the bullet and do the second mortgage as an investment property?

Thanks in advance!