Have plans to keep building a bigger house with ADU turning the existing 700sqft home into the DADU.

I am a mortgage lender located in southern California.

Things are tight with day care, mortgage for personal home, and kid #2 on the way.

That you won't be able to get rent to cover the mortgage?

IMO It is a complete violation of the takings clause of the 5th amendment... but you're going to be in for a world of hurt if you buy into a market with existing restrictions.  

Hi,Is interest on a loan for a piece of real estate considered an amount owed on the mortgage of a property when calculating the equity for a piece of real estate?

I understand it has the possibility to change yearly but I didn’t expect it to almost double what the mortgage is on the property.

The mortgage broker gets paid when you buy. 

Hang in there for a few years till things correct or inevitably rents go up and the fixed mortgage stays the same.The people that only own vacation rentals and paid too much will likely go under in saturated areas.The other option is to be the tallest pygmy and stand out amongst your peers.

The home was purchased with my VA loan at 2.99% with a remaining mortgage of 393k currently.