Secondly, is it legal or allowed to buy a new house in a neighborhood and rent it out?

Try to have your personal debt under control, have a good credit score and understand you will need some cash and reserves the amount will be determine by your market.. .

It's a waiting game even when you do succeed in taking legal ownership of the properties.

Problem my debt to income is through the roof and I can’t count my wife’s income because her credit score isn’t good enough.

@Henry Der you need to get some legal and accounting advice. 

Do not rely on it for legal advice.

Pay off debt?

Whether it’s legally or financially?

Also, what legal ramifications I could encounter?

Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction.Note: Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan.The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value).All other cash-out refinance eligibility requirements are met.