Please feel free to reach out if you have any questions. 

If you want to chat about rentals feel free to send me a DM and we can chat.

Remain dedicated to your objectives and keep learning as you go, regardless of whether your emphasis is home hacking for passive income, using the BRRRR approach to generate wealth, or flipping houses for rapid cash.Please feel free to join in conversations and ask questions on BiggerPockets—the community has a plethora of expertise. 

Can I just sell the house (with the squatters) to someone local that feels like dealing with it?

My loan feel through because I didn't have enough time in the army to use the VA loan and I was counting on it the whole time so since that feel through I hade to go the FHA rout witch increased my interest rate 1.3 percent and on top of that I now have to pay PMI and if I had been planning more than one loan in the begging I would have been prepared Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

@Matt Harris I know the feeling.

You could offer them 1/2 or whatever ratio you feel is fair given the circumstances and they can write you a check for that amount to walk away.Another thought, if there is a way you can find out where they are moving, a forwarding address etc, I'd reach out to that new LL or owner and explain the situation to them, I have a feeling the tenant didn't disclose that they have an existing lease as a liability in their financials when the applied, and there may be some application fraud etc at play here that the new LL would likely want to know.Think about this from your own point of view, I doubt if you picked up and left one of your subway locations that the the LL would just let you leave.  

In the other hand, we do not feel comfortable buying this home anymore, our goal is to back out without paying a penalty of 2% of the sale price, and of course they are going to try and fight that expense.

Sell it...based on your post if you rent this I can almost 100% guarantee you will feel angst and concern with every tenant.

I think the best way to overcome analysis paralysis is to align yourself with an agent you like and trust and who is well-connected so you feel confident you'll have the support you need to close the deal and get off to a good start.