If its negative, the amount is added to your other debt payments.  

I also look at the credit report and check the income to debt ratio as a loan officer would.

Mortgage debt at that time was around 20% of your income.

We never miss payments and avoid debt on anything.

On top of that the seller has so many expenses on the property that it will only debt service at 55% Loan to Value.

This may well be true, by the way.The other, weaker way would be to explain that by making a loan you are putting yourself in a debt position, which means a fixed rate of return (assuming the borrower pays, which we will for the sake of argument, ha ha).

Is the pot in your possession?

I also don't know how to approach an offer on a bank possessed property.

That will get you going and give you a way to keep your debt to income ratio down. 

I am still working on my long term goals since I will be focusing more towards paying off my small student debt in the first year or two after school.