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!

[Samuel Vogt]

@Chris Duvall great insight.. I need to check with my accountant to see how my taxes were filed, and then maybe get some insight from him as well. 

I was thinking that an FHA might be the best option moving forward, but I hear that they are cumbersome.

I am trying to weigh the potential upside of doing that second mortgage as a straight investment property. My thinking is that it builds report with this small portfolio lender so that they trust me long term.

I am still about 6-8 months out from having the capital to purchase, but was thinking about doing some things to help the lender build trust with me.

- Opening an account and making a sizable deposit every month as I accumulate capital 

-Opening a HELOC now with the lender, but not tapping it

- Refinancing some student debt with them as well

Thoughts on this strategy with the lender? Do you think these things will make a difference?