Do I wait and pay down my debt to get my DTI lower so I can get conventional lending without taking equity out of my home?

If you buy the house hack first, your DTI will be messed up for 6-12 months until you can move out and use the rent as income to offset the debt.

@Javaras ThomasBanks are going to look at debt service coverage ratio (DSCR) to determine how much they will lend to you, not ARV.

So we have been trying to turn that around and followed Dave Ramsey's plan to help pay off most debts.

So we have been trying to turn that around and followed Dave Ramsey's plan to help pay off most debts.

You will want to continue to keep saving up money and paying off debt to put yourself in a position to buy, but when you're ready you can buy a property and have the tenants paying off the majority of the asset for you!

Those loans did not have to comply with RESPA because the property was not used as a home (Airbnb only) so the bank had more leeway with debt to income and such.  

If the more expensive 3500sq ft house was going to prevent me from getting another loan down the road because it added an extra $150,000 of debt I might stay in the existing house for a while longer and buy the 2500 sq ft rental house.

The debt types that typically garnish wages are landlords, care loans, furniture loans, credit cards, personal loans, etc.   

Cashflows about $300/month after debt/expenses.