My lender says there is a potential to get the rental with remaining VA credit if possible.

Credit score excellent, property is over 1.25 DSC...

They agreed to take loan payoff for the house to avoid foreclosure on their credit.

You see like many average Americans My finances are in a small mess, but I’ve just gotten my income tax return and paid down some credit card debt, so I want to use this breathing room wisely.

If you can find a turn key place, with tenants already in it and it is already managed, and it cash flows...consider getting a personal loan, using your TSP for a loan, credit card advance etc for the downpayment.....if it cash flows only....Some markets a duplex is 250K, while others it is 129K...20% of 129,000 is not unrealistic using other creative ways to get cash. 

I haven't used it (yet) myself, but banks can offer you lines of credit for a percentage of your retirement account value.

Evidently the buyer's lender required him to pay off his credit card balance in order to be approved for the loan, and the buyer refused/wasn't able to.The asking price is $128,000, but I was thinking of utilizing a BP calculator report (shown here) in an offer to show what it takes to achieve my coveted 7% cap rate and 10% COCROI.

All my contract says about the earnest deposit is the amount, who it will be held in escrow by, and that it will be credited to the buyer at the time of closing.

I want to thank and give all credit to Kidder Mathews.

Evidently the buyer's lender required him to pay off his credit card balance in order to be approved for the loan, and the buyer refused/wasn't able to.