It depends what you are planning to do if you are looking to sell a short sale may be an option. If you are looking to stay then call the company you have the mortgage through and see if they are part of the harp program.
Honestly a local lender would be the best. If I can help you with your purchase let me know. I know Portage very well. Even if you just need questions answered feel free, I know that this can be nerve racking trying to get everything in line for a smooth transition.
Is the lender licensed in Indiana? Depending on the lender do they also have appraisers etc... set up in Indiana.
If the home does not need repairs it must fit the VA guidelines. The home listing should say what kind of financing it will take. Generally if it will take fha it will fit VA guidelines. Find your self a good buyers agent and they will be able to tell you what financing the home will take. You will want to interview a couple buyers agents in the area to find out which agent is the most knowledgeable about financing.
The best way to find out a homes worth is to ask a local real estate agent familiar with the neighborhood to run the comparative sales in that neighborhood that will give you the value.
See an attorney immediately there is no one here that could or should give you legal advise on this. I know they are expensive but it will be worth it.
Interesting that you say make an offer there is a lot that goes into a short sale. I see the property is not currently on the market. There is a ton of paperwork that goes into a short sale and the home owner would be the one that would have to start the short sale process. I see you are from California and if this is a family member there are also rules about arms length transactions.
You definitely need to contact a mortgage broker. You have a lot of factors going on with student loans they can be tricky on how they are figured into your debt to income ratio. Credit score sounds good but I am assuming that is only one credit bureau. In the area that you are in there are a lot of great homes and you are right to want to purchase as opposed to renting.
Seller still owns I have seen this happen before. So sorry this is a tough situation. Most short sales do not go this way.