The housing market is completely broken and I don't know how anyone can actually buy a house unless they are selling theirs in a high cost area, moving someplace cheaper, and buying with cash. Here's my situation:
Due to many factors, my wife and I want to purchase a larger home in the same school district we live in now. We will likely sell our house for over $200k more than we bought it for, and after paying off the balance of our current mortgage, we should have about 45-50% of a down payment on our next home. Notice I said should.
Because of the lack of available homes, there are multiple offers on each available home no matter the condition. Because of that, we have been advised that any purchase offer we submit cannot have a contingency that we sell ours. A contingency will make our offer far less attractive. So we need to take out a bridge loan (which in the form of a HELOC) and find other funds to cover the down payment, which will then be paid off when we sell our house.
Since we have a balance on our current mortgage, that is considered debt when calculating our debt-to-income ratio (the current mortgage, HELOC, and new mortgage are all factored in the DTI), even though we will pay everything off immediately when we sell our home. As a result, we cannot get a mortgage big enough for a home we know we can afford. If this was a normal, or even close to normal, housing market, we could use the equity in our home to calculate our next mortgage, but instead our current home is essentially a liability.