Some Good News and Some Bad News

Good News
The loan broker I've been dealing with, who is also a RE investor himself, sent me an email the other day in which he gave me contact info for one of the biggest HUD agents in the area. So, I took a few minutes out of my busy schedule yesterday and gave her a call. She was exceptionally easy to talk with, which was a definate plus right off the bat. She said she may be steering away from HUDs in the near future as conventional buyer's are increasingly having a hard time coming up with any money to buy the houses. I told her that I already purchased a HUD as an investor last year and understand the process, which she laughed and said was "a pain" herself (and I agreed). She asked for my property search criteria, and I gave it to her. I'm not lying, within 5 minutes of hanging up the phone, I received an email from her with the first client gateway search of properties. One of the biggest HUD agents in the area, easy to talk to and FAST - I'm definately liking this relationship already!

Bad News
The loan broker himself has been dragging his feet a little bit. In my initial conversation with him over a week ago, I asked if I could get a pre-qual letter. After several emails and some miscommunication (he thought I didn't need it until I found a specific property), I FINALLY received the letter this morning with an email. It turns out that he can only find 80% financing for me at this time due to our debt-to-income ratio, which I admit is a little high. He said that even if I find a property I can buy <80% FMV, I would still need to come up with 20% of the purchase price. This was a big blow. I was hoping only to put down 10% at the most for any property, but 20%? - ouch! Since most of the properties I'll be making bids on will be in the $100k area that means I'll need $20k in cash.

I can tap into the equity of both my personal residence and House #1, but Texas (or maybe it's nationwide?) requires a minimum of 20% equity be left in a home before getting a HELOC, so I could only get any equity AFTER the 20%. I'll double-check this with the loan broker just to verify. I have about $1k in my personal residence after the 20% and ~$9k in House #1, which would make up half the money I'd need. I can also draw money out of my 401(k), but not sure of all the rules and regulations associated with it yet. Either way, I wasn't expecting to come up with such a huge downpayment for any future investment home, but it's something I'll need to deal with. If I use 20% of my own money, and then turn-around and refi to pull the money back out, it may be just a short-term hassle (and may not even hurt me much when tax season rolls around).