Should I sell my condo to qualify for bigger loan?

[Lizbeth Castellano]

Hello everyone, I'm new here and today is my birthday and look where I am, BigggrPockets because I'm determined to become a successful real estate investor one day (best if sooner than later :-) while being a single mom and working a "9-5"  (more like 8-7pm which is why I'm looking to change that with real estate) and I think you guys are great, so thank you in advance for your help.    

I bought my condo almost 8 years; I don't have much equity on it and I think my best option to get started is to to buy a duplex or 3 family house where I can house hack because as a single mom I think will free up most of my expenses which in return I'll be able to save it all and use it to save that 20% to buy my next property.  Problem is I don't have the 20% cash right; most of these duplexes in my area (I'm in CT) in a decent town that I would consider are between $250k and up West Hartford would be ideal for me but there they are much higher.  

I thought about getting a personal loan so I can have the cash in hand when I find the property bc all the good ones go pretty fast but this will limit my buying power and I'll be paying higher interest or sell my condo so I can qualify for a higher conventional loan and only have to come p with the 3-5% as supposed to 20%.  

What do you guys think?  Is there another option I haven't considered?  Any input would be appreciate it.  

Thank you 

Liz - future real estate investor

[David Wolber]

HAPPY BIRTHDAY@Lizbeth Castellano!!

To add to what @Jaysen Medhurst said, you can get a conventional loan with 5% down while still keeping the condo ONLY if you plan to make that your primary residence. At a purchase with less than 20% equity position, you will have to pay PMI in addition to the mortgage P&I. I have a duplex in New London I did exactly what you're describing and we paid the PMI so we kept the extra 15% for renovations. Now it's a cashflow beast and i'm still paying the PMI each month, but don't care because having the extra cash at the time was far more worth it than the extra $120 a month I pay.

Have you looked at what renting out your condo looks like? Something to remember about renting out a condo is the condo declaration documents may have a restriction on renting it out. Some is a residence requirement (live there for at least 2 years) and others have an overall community percentage (only up to 45% of condos can be non-owner occupied for example). Then again there may be non at all. As far as a rental goes, if the combination of mortgage, HOA and other standard holdings are covered by the rent, it's usually a great rental. In my experience with condos you get the easy of placement of a multifamily and the long term tenants like a SFH. Some, and I do mean SOME banks may even use a percentage of projected rent for the condo to counter your DTI.

Obtaining a personal loan for the down payment won't work as the bank will view that as financing the down payment.  They frown upon that.  However, if you have a 401(k) with your work, or a different retirement product that is allowed to borrow against, IRS allows up to $50k borrowed.  Most banks don't see this as a loan, they see it much like an equity line of credit.  

Speaking of equity, are you SURE you don't have any equity in the condo? Are you using something other than a Zillow estimate? Something like MLS based comps for other units in the complex for example. I mean no disrespect or insult of your intelligence, but often times people take that estimate as gospel who are just unaware.

Keep this drive!  It'll pay dividends on the back end for sure!!

-Dave