Requiring impounds is standard practice if you're over 80%.  

@Jonathan Ramos, @Art Herbert is suggesting that you structure the deal to finance the property with a standard mortgage at 80% LTV  (which covers the sellers existing loan) and ask the seller to hold a 2nd (carry the paper) on any remaining balance of purchase price that you work out with the seller.

I am looking at $1350/ month for the same living expenses (with CA taxes, $300/ month HOA , insurance and internet tacked on to the standard mortgage payment) if I buy this place.

If I need to seek a partner to afford a down payment on a property, what would be the standard terms of a deal like this?

There are several other standard market companies that should be considered prior to going with a nonstandard option as the coverage will be much broader, and most of the time, much less expensive.

The regulations state that a persons income must only equal or be higher than the rent preventing us from using 3X rent as a income standard.

I'll have $140 in it and could sell it for $240 right away, but the neighborhood is really starting to move, so hopefully in a couple years it'll be worth an extra $100K.I've got a couple others that I just did a light renovation on to rental standards and if the neighborhood really takes off, I'll redo them to high end "buyer" standards.You've got a good thought.

I'm planning on living in the property and updating it as well as adding sweat equity to bring it up to standards for renters or potential buyers.

@Cory Newton research "Homestyle" loans if you want a standard conventional product for renovation work where you don't have to live in the home. 

There are many pros, but two cons that seem most prominent in my mind of the bat: 1) getting a license doesn't make you an expert out of the gate, even with MLS - an experienced real estate agent can guide you into an emerging market that you might not know about vs. an obvious, saturated market, for example, or explain why a comp only .2 miles away is actually no good for your prospective purchase, among other things 2) if any litigation were to arise in your r.e. business, having a license will almost undoubtedly mean you are held to a higher standard, probably with respect to any aspect of the deal.