I'm in CA, but I do t see why MI would be different on this.

So I would ask yourself what your play is and does t fit into your long term strategy.All the best.

If you were to refer me a client, do you want me preapproving them and telling you they are good to go when in reality they have $0 towards any form of down payment and can't even afford an EMD or appraisal fee, much less lunch? 

The HA will then determine if they can pay your rent based on it being reasonible compared to other comparible non-sec 8 rentals and affordable for this particular voucher holder.  

We cannot afford to invest in our area (Southern California) so we are planning to look OOS.

If you found a GREAT off-market duplex deal like driving for dollars or with a direct mail campaign, you may be buying it SO below market that you can afford the hard money loan and then can refinance it into a better loan in 6-12 months.

You can't afford missing a payment on this kind of loan. 

In order to truly be able to afford that property, they need to earn a little over 3 times the rent to hold housing costs at 30%. 

Supply and demand, demand is high for affordable housing, it always will be.

Or you can offer the tenant a rate that's affordable for them, but still high enough to meet your needs.