@William Lewis you're correct that closing costs on HELOC is much lower, usually just an application fee along with an annual fee (some banks will make you pay for the appraisal as well). 

I got a little over $17,000 back.I inquired on getting a rental property next, only to find out that my debt to income ratio is slightly too much to get a loan through the bank.

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I recommend shopping around the local banks for terms. 

Most likely the loans have a “right to call “ clause, which means technically the bank can require you to immediately pay off the loans when you transfer ownership.

Know and comply with the landlord tenant laws for your jurisdiction.

If you are buying to keep as a rental or to sell under owner financing, you will want to work with a bank that does not require a seasoning period.

In terms of financing, I'ver heard small local banks and credit unions are the best to find flexible options?

Do I just pay off to the bank after I receive the payment from buyer?

You can work for a bank that provides the majority of your leads with the in-house customer base.