Seeking some advice - to get started/continue

[Michael Hill]

I have been divorced for a couple years.  When she said she wanted a divorce, I bought a house (all mine, all happened within the confines of legality for my situation). 

I purchased a foreclosure from Fannie Mae for $40k (back in 2013), no money down and all I had to pay out of pocket was closing costs.  Appraised for $42k (in 2013).  It was a 1350 sf 2br/2ba.  One bath is in the finished basement (mostly finished, not laundry area), oversize 1 car garage, separate tool shed, privacy fenced back yard, central a/c with gas forced air heat, newer roof, vinyl siding, new-ish double pane windows.  

I had an inspection done before purchase and the home inspector was amazed at the condition of the home (for a foreclosure) and the price I bought it for, so it's in great shape (structurally and mechanically).

It needed some freshening up inside (paint, carpet, bathrooms etc) but it was decently livable and I was happy with the deal (knowing the potential for my future plans). 

Since purchasing, I replaced the upstairs bathroom flooring (sagged due to a leaking flange on the toilet) with new vinyl floor.  I have installed a dishwasher in the kitchen (where none existed before) AND I had an egress window installed by a contractor in the basement (in the 'family room' area) and currently am using this extra room as a bedroom for my boys. I think I now have added value in that the basement could be a third bedroom (if I put in an actual closet).

I believe I can rent this house for $750 - $800/mo given the area when it's time for house number two, but here comes my quandary: 

I'm still paying down debt from the divorce (car loan and credit cards).  I'm current on the payments, but after child support there's not much extra to keep knocking the debt down as quickly as I'd like.  I have planned to be debt free (except the mortgage) in 3 years and will be ready at that time to put a 'for rent' sign out front.  Assuming the going rent will still be $750 - $800 (which is a big assumption, I know) I'm wondering what the next step should be.

Should I save for a down payment for an FHA loan (my current loan is conventional, not FHA, and no PMI) or something else? My confusion is that I'm having a hard time wrapping my head around the idea that I want to get a tenant for this house, AND I'll need a place to stay. My thought process is that I should save 6 months of mortgage payments for my current house ($334/mo including PITI) and purchase a new residence for myself (to hack) and then get a tenant for my current house ?

My intentions with the cash flow from house #1 is to keep it all (minus vacancies/repairs etc) and snowball it into a larger chunk to help purchase house #3 (remember, I'll be living in house #2 and fixing it up as I go) but I'm still a bit confused as to how to prepare for and handle the transition into a second house before I have a tenant for the first house (I'm sure the bank will want to see that I either have a tenant, or reserves to cover the first loan until I get a tenant).. 

Thoughts or suggestions from the pros here ?