If the bank approves your loan, that generally means they have confidence in your plan, and since they are on the hook for 75-80% of your loan that's a pretty high mark of confidence.This isn't to say you don't need a plan or that the bank is omniscient; it just means that there are a bunch of safeguards in place that help keep you from driving off the cliff. 

I have Been pre-approved for the full value of the house.

I have Been pre-approved for the full value of the house.

We are seeing that the change in FHA criteria has impacted one of our buyers and even though the house was under contract when the changes in FHA loans came into play, the buyer could not get approved as a conventional buyer.

Trying to think of the best way that he can 1) pay off the defaulted loan without further hurting credit score and 2) getting approved for a small mortgage for this investment property. 

One positive is that I finally have time to do a lot of the leg work that I've been putting off like organizing an LLC, opening up a bank account, getting pre-approved, etc.

It gonna come down to how cheap you get the land for because if you overpay the lender wont approve the loan..

Check your state's real estate department's website and there will probably be a list of approved courses.

Let’s say for example, If you purchase a rental property for $250k, but get an approval letter for $300k.

Do I need to get pre approved for a certain amount for the refinance portion from the bank BEFORE I even start looking and making offers?