If their debt to income is too high, that will be reflected in their credit score.

If the investor you spoke of had done so, not only would they have been aware of the underlying debt, they also could have requested the seller give the current lender authorization to share information with the investor. 

Its a 22k forgivable grant after 5 years.  

I have $1,000 in saving and every bit of my extra money goes to the debt snowball.

These have generally been easy to do in part because interest rates kept getting lower, so there was benefit to refinancing even if you didn't want cash out.As interest rates creep up, the benefits of using HELOCs rather than refinances to tap new equity will grow, because investors won't want to increase the interest rates on their existing debt.

That's why investing 5% in an owner-occupied home is such an awesome deal (even with slightly higher interest, PMI).As you amortize this debt over time, this seriously hurts your return compared to a normal investment in the stock market, because your equity % is going higher and higher.

Although only contributing 20% of the equity, I am more than capable of guaranteeing the full amount of debt. 

The main items ypu want to focus on now when running your calculator is the debt service (mortgage), taxes, insurance, maintenance, Capex (if property is in excellent shape and doesnt need any major improvements then this figure does not need to be quite 10%), vacancy (talk to PM), landlord required utilities (if any), lawn care snow removal (if applicable).

Unless you have a deal in the works, need cash fast, have other debts, or have fears about the market a conventional cash-out ReFi is the optimal choice.

If you want to keep your money, then buy well located, cash flowing assets with good debt and excellent management and don't buy on the hype.