HELOC/HEL for down payment or Owner Occupy first Duplex?

[Christopher Bongo]

Hi all,

I bought my first home 2 years ago for a great deal and so my current LTV is roughly 74% on this home, valued at 225K. I'm looking at investing in a duplex or triplex in Allentown ($120-$160K) and struggling to make some decisions...

I only have about $18K available in cash, so I've come up with 2 options. 

1. Find a place that I can owner occupy and get an FHA loan with 3.5% down or conventional with something less than 20% down.

2. Get creative and cash out refinance, or get a HELOC, or HEL on my current property to free up between$13-$25K cash (at a price). Then finance the investment property at 20% down, which I'm finding is the absolute minimum if not owner occupied.

I know I can make the live-in/house hack option work financially, but I'm not sold on moving to Allentown... I love the house I'm in now. So I'm curious about Option 2. Can I take out a HELOC or HEL or Cashout Refi to get more cash on hand? Once I do that though, my Debt to Income ratio becomes something like 37-38% (dang student loans). Will I even be able to get a mortgage with a DTI that high? I don't want to shoot myself in the foot by taking out this line of credit.