Now that is time to buy, tenant can't qualify due to debt to income: he has 20k+ credit card debts that is not able to get rid of (he is paying interest every month, but has no extra money to pay principle down) and has 2 car payments ( I guess he could sell the cars in the period when he qualifies for the mortgage). tenant lived in the house 35 years!

When you interview an agent, make that agent overcome your objections and prove their methodology.

your house payment does not all go to principle  some of is interest,  some of it is taxes, and some (very little) is Principle.  

I'm sure there's other pockets I missed as I only spent a few hours spread out over a few days poking around and gathering this info, but for the most part it seems to be a solid place to start for my objectives. 

Persist, don't give up and don't be distracted by other shiny objects along your path to success.Although a little bit riskier in nature, it may be worth considering an aspect of real estate investing that very few people partake in.  

Can I just pay the principle amount plus reasonable late charges instead?

David,Having a home inspector taking a look at the property is a great way to have an objective opinion about any issues that may come up from you tenant as well as avoiding any problem from  municipal inspections if there are any.

It's the only way to "secure" your cash flow.I used to work in the GH area, so I understand the temptation and attraction but don't let the "shiny object" trick you.

First the tenant is paying my principal down (at 5.75 on 100K at 5 years my principle is 89,605). 

You need objective advice about that.