Second Lien Situation Good Vs Bad

[Ariel Echevarria]

Hello everyone. I am having a hard time pulling the trigger on my first rental. I want to buy a rental but I only have $3600 in stocks and about 14k in equity. I am wanting to purchase a house that is listed at 79k. I reached out to a local bank and this is what I emailed the mortgage guy.

"I am in the process of filling out the paperwork you sent but I'm afraid I have to pre-warn you that we may need to schedule a time to sit down face to face to go over this form. Also, to talk about some options I have. Just as a reminder I'm looking at purchasing a property for the purpose of eventually renting out to my in laws and they would have the options to buy it from me or just continue renting it.

They currently live in Pennsylvania and are in the process of selling their house. In the mean time, I plan to rent the house out until my in laws arrive. Once they get here they will be in the house for the long term and receiving a retirement pension and working full time. My main thing is options. I have roughly 14K in equity in my primary residence and about $3500 in stocks I would like to use toward down payment. I remember you saying I would need at least 25% down so I can't go much over 69k. I have an analysis that I have attached on a potential property that I'm interested in just so you have an idea of what I'm thinking. I went as conservative on the numbers as I could. If you can offer any insight on the local market on rents, etc I can adjust it. Hopefully this gives you a little more clarity on what I'm venturing to do. "

He looked over the analysis and gave me a couple of adjustments with interest rates and some more information on possibilities. This was his response...

"Thanks for the response. I looked at your attached projections and just a few things that you would want to adjust. The interest rate is lower than what we would currently offer on a rental property note (we would be around 4.5% on a 5yr arm) and the maximum amortization we can offer on those type of loans is 20 years. I need to see your financial statement to see what your total financial picture is. If we strictly use 100% of the equity in your primary residence to provide the down payment, we are essentially creating a 100% loan on that property (and putting us in second lien position). I’d be happy to assist you in completing the financial statement."

I'm not sure what all this means. What would it mean that it would be putting them in a second lien position? after making the adjustments I would still cash flow over $100. which isn't terrible in my opinion. I just have a hard time with the thought of tying up my primary house equity into a rental even though I know the numbers are pretty decent. I wish I could attach the analysis but apparently you can't in the forum. Any advice would be helpful.