Cathie,Correction on the 2nd option:Cash flow would be $492 monthly/ $5,899cash on cash return would be 9.75%Yes, the sellers shared the  interest rate and principal loan balance.I assume the sellers would come out of pocket for the $42k.

To qualify for the Section 121 exclusion, it must have been your principal residence for 2 out of the past 5 years. 

From HUD 4000.1:“If the original Mortgage was closed on or after December 15, 1989, the assuming Borrower must intend to occupy the Property as a Principal Residence or HUD-approved Secondary Residence.

I would use the cash flow for future capital or for paying down the principal. 

I'd like to have conventional loans and spread amortization out further but I also like seeing how much my principal drops on the short term amortizations.  

Short or not - the buyer and seller are still the principals in the transaction - The short sale approval is just  a contingency.I would also have to disagree with your statement that universally short sales are hard to complete.

I'm in the process of buying my first piece of real estate, and I'm aware that an amortization schedule/ calculator helps me find out how many years I can shorten my mortgage by making extra payments on the principal.

These type of properties, getting an all rented property for cheaper to fix-up later (basically the brrrr strategy) it pays for itself and cash flows are the only properties I am interested in...less work the better but the renovated properties still seem to be out of business model in terms of coming up with the down payment and re-payment strategy of being able to pay it off in 5-7yrs as we don't need the profits to live we just continually pay more principal from the rent. 

The principal for the property currently sits at about $86,820, with an Escrow balance of about $850.This is obviously a very bad deal as it is; my question is what would be the best option to drop the mortgage every month in order to get a positive cash flow, either by refinancing the mortgage, or getting some other loan at a much lower monthly cost?

If you already own the home you live in, then you can only use a FHA loan for a new property if you:1. are moving because of a work-related transfer2. an increase in family size requires a larger homedirect quote:“FHA will not insure more than one Property as a Principal Residence for any Borrower, except as noted below.