Does anyone know what RCW's or regulations I could use to double check my assumption and also help educate those that think this is wrong?  

Written in the loan docs for most loans are clauses that allow the bank to take the funds in your checking/savings accounts, sometimes for reasons totally outside your control, such as banking regulations and requirements. 

A campground would be regulated like a subdivision per county regs, and that wouldn't fly.

You will need to issue him a 1099, which means the government is aware of his income and he must pay taxes. 

Just a quick overview though -- VA Loans are intended for Veteran Owner Occupied properties and have several regulations.

I also want to know where I can find information about first time home buyer grants, I've tried looking on government sites but came up with nothing.

DTI is different depending on the loan type, governing body, and bank.  

I'm searching for a program, possibly a government backed/grant program that would loan money to purchase and rehab a property with a portion of debt forgiveness in order to make it profitable for the rehabber yet keep the purchase price low enough to bring in end buyers in a neighborhood that is prime for growth but needs a little help.

I think now with the new banking regulations you would be hard pressed to pull this off, but loopholes can exist.  

The party wall agreement would govern modifications to shared parts of the structure.