It is a Fannie Mae ARM with the first year being X and the remaining term of the loan increasing and becoming fixed by 1% the following year for the remainder of the 30 year loan.

Some of that would also be used to pay the ~$1500 in closing costs on this new loan.I understand that this increasing how much we are leveraged greatly(by 34k). 

Your number one priority should be increasing your income.

When you rely on outside help that may or may not exist, you increase liability.

Also the property taxes in El Paso increased by almost $400 and that’s another reason that I’m paying too much.

@David FriedmanYes you are correct, it is almost like a reverse mortgage and yes there is a huge element of speculation to assuming a 2% increase in property value for the next 30 years (although it is in Irvine near the University!).

Since their lease expired 5 & 9 years ago(2 separate unit), can I file application with UC township to catch up previous rent increase ( average 2%-3% CPI Consumer Price Index increase)?

Make sure all costs are passed through to the tenant, including all permits and approvals, maintenance obligations, tax increases, etc.

However, that doesn't increase your chances of getting the house, and makes for an awkward transaction.   

Would like to buy direct from other owner (No Real Estate Commission) with living trust money's but need to hold property in living trust not my name or get hit with high property taxes increases.