I am a new investor with no prior landlording experience, looking to get pre-approved for a 250K purchase price, with 25% down. 

The tax break applies if you had lived in the house a total of 2 years of the 5 years prior to selling the house. 

Did you have prior construction or foreman experience?

I took the practice test 3 times 2 days prior to the actual exam date, failed all with a percent of 53-56%.

Found out the property has a $2600 lien on it for unpaid water bills that the utility company said will need to be paid prior to turning on the water...

But proper procedure at that point is, the buyer should request the seller fix every thing in the inspection report and the seller should provide proof (pics/video/reinspection) that all repairs are completed, prior to closing.

The house has all kinds of garbage and remnants of the prior owner there.

Make sure you check your state law for notice required prior to rent increases.  

This income will never be capital gains income (subject to only 15%) regardless of how long the investment is held (and has nothing to do with how long the income is held prior to being paid out). 

Some banks will include it in your DTI prior to the 1yr mark w/ proof of lease agreement and deposits.