None of these originators are allowed to assess you as a higher risk because you paid off a mortgage early. 

32k or even 42k on a half million dollar house doesn't sound all that good.What's your projected cash flow after all your expenses including a likely higher mortgage payment than the current owners?

@Maria JeanetteHere are some of the downsides of putting real estate into a self directed IRA or 401k.No tax deductions: You can’t claim deductions for property taxes, mortgage interest, depreciation, repairs, improvements and other property-related expenses.Property expenses: All expenses, repairs, and maintenance costs must be paid with IRA or 401k funds.

That will be on top of a mortgage on the new property.

While I don’t suggest that the smaller type investor purchase and utilize “exotic” vehicles like foreign asset protection trusts, family limited partnerships with outside controls, or Byzantine or convoluted maze of ownership entities, the more simple strategies of using Series LLCs, self directed retirement plans, and paying off their home mortgage to the extent of the Federal BK homestead exemptions can insure that a plaintiff attorney never even considers going after them.  

Quote from @Jaycee Greene: it all depends on the credit scores, but consumer mortgages tend to have lower interest rates than commercial loans.

There are plenty of investments that will make you money and have mortgage paydown.

You can rent out a vaction home so it can be used to earn some cash and offset the mortgage for the frst year. 

Does it need enough work that it will not pass a conventional mortgage appraisal, thereby limiting yourself to cash buyers?

I am not making any conclusions just doubting, as previously mentioned, if a 30 year conventional mortgage (nonconforming, but standardized within the banks operations somewhat), necessarily excludes renting it out.