Talk about an awkward position to be sitting in walking into bank and banker looks across the table and tells me no on VA loan, as you guys stated.  

It's good to be with people in similar financial situations, then you're not dealing with the awkwardness around planning things at nice restaurants, trips, etc. where it might be out of someone's league and hard to figure out what the right spend is...just my thoughts.

Disadvantage would be if I should ever need to evict him, that could make work life a bit awkward.

For that awkward tier between like $200,000 and $1,000,000, you most likely will need to go with a local or regional bank who will carry the loan themselves.  

It would be less awkward than asking a realtor who you may not use.

This is supposedly to reimburse the landlord (that would be me) in the event that he puts alot of work into studying an applicant, only to have them say "Oh, I found something elsewhere, nevermind".However, this deposit has ended up being very awkward in my case. 

Presently he is now turned into my friend and this could get awkward if I don't use him.

(still a bit of an awkward request onto the Seller)Or perhaps, see if the Seller is willing to finance over the near term, though with tenant cash flow you would probably need to give the Seller some decent upfront cash to entice the setup.  

Thanks Dion DePaoli for the helpful link "Pre-foreclosure" is an awkward term.  

I'm a bit awkward about taking gifts; feels like bribery to me!