Merging mortgages when buying a second property

[Melody Wright]

Good Afternoon All!  

Question for the more experienced of crowd here.  Is it possible to "merge mortgages" and if so, what are the options for doing this?

Here's the backstory. I bought a house in 2011 for $115K with a 30 year mortgage at 4.375%. I have paid down the mortgage to $70K, and the property is worth appx $170k now. Due to a job change, I moved a town over and have begun renting this house out. In my new area, I am currently renting as it was a pretty quick move, but am looking around to purchase another property. Property prices where I'm looking are about $170k. This new property would eventually become my new primary residence, and I am a veteran so there is a chance I can purchase through a VA loan with 0% down on a new property. I have about $30k in savings that could be used to pay down a loan or as a down payment. I like the idea of a cash out refinance of my rental, but that would only free up about, $100k (subtracting out the $70k I still owe), combined with my savings would put me at $130k, which is not enough for the area I'm looking at.

Ideally, if I could find a property to purchase at $170k, but finance at $225k, that would allow me to pay off the first house, essentially kind of "merging" two mortgages into one.  This would be beneficial to me since mortgage rates now are nearly a full percent lower than my current mortgage.  However it would appear on paper that I was under water on the second property, so I'm sure that a conventional loan wouldn't work.  

Any suggestions? 

Thanks!