I'd use an approved underlayment.Pro Tip: If it's cheap, it's not good.....at least spend in the moderate range.

HUD performed extensive due diligence on us, and had to approve us as buyer's and our management company and mangers.

So he needs to be more ITM than  the 1.25:1 ratio.With that said, to answer the question-- figure out your debt or income.

Starting the pre-approval process and it's been easy so far, but I do like to hear from people who have used a company before.

It could be a nice opportunity however I would be certain they will want you to make up the difference between $250,000 and whatever is left on the mortgage which btw in my opinion should be done with lender's knowledge and approval. 

It’s great that you’re pre-approved, but I’m curious why you’re leaning toward traditional lending instead of hard money, especially for a flip?

Your goal is to plant the idea in their mind and create a situation where selling to you feels like the easiest and most logical solution for them.If you haven’t already, the first step is to get pre-approved for a mortgage so you know what you could afford if you were to purchase the property conventionally.

What types of IRS/CPA approved payments are working well for rents to LLC entities to keep personal and business funds from co-mingling? 

EVEN IF THEY ARE PAID they cant guarantee that a short sale will even be approved AND cant guarantee any price.

If it's worth $1.3 million today, it will be worth $3 million or more in 20 years, you'll have paid off the debt (or most of it), you'll earn at least $3 million in cash flow over those 20 years, and you'll have tax benefits.