Provided OP will owner occupy and there is sufficient equity in it, this can be done with <$2k cash to close (inclusive of down payment and all closing costs) and no PMI.

@Cameron Belknap FHA loan rules in HUD 4000.1 mention not counting the basement as part of the Gross Living Area; however, part of the FHA requirements found in HUD 4000.1 includes a section on “converted spaces” which states:“The Appraiser must treat room additions and garage conversions as part of the GLA of the dwelling, provided that the addition or conversion space…is accessible from the interior of the main dwelling in a functional manner; has a permanent and sufficient heat source… and was built in keeping with the design, appeal, and quality of construction of the main dwelling.”Furthermore,“The Appraiser must analyze and report differences in functional utility when selecting comparable properties of similar total GLA that do not include converted living space.

If someone had a live(1) deal that needed it in my state I'd do it, but the probability of that happening is sufficiently low that I'd much rather let other lenders waste their time with trying to get to that point.

@William Huston those numbers seem sufficient but not great.

@Gene Walker, The former owner can raise this issue in several ways.1) They can provide sufficient evidence to the tax collector to persuade that person to declare the sale void. 

@Michael Lear obviously “getting your money back” isn’t sufficient but I doubt the removal cost and the actual damage of their failure should exceed 10k.

@Chang Hee LeeUsually, just a letter explaining who to send the rent checks to, how to handle requests, etc is sufficient.

They ended up having to cancel their project and decided to sell as is because the association required a lot from an insurance standpoint from the contractors, therefore, my client struggled to find a contractor with sufficient insurance coverage for the association to accept.

In my view, homeowner's insurance + umbrella + professional property manager should be good enough to (i) prevent lawsuits and (ii) protect you sufficiently if the worst happens. 

Given that I will be considered self-employed and will initially not have income (or at least not income that is steady or predictable), I will be having my parents co-sign the FHA loan to fulfill the income requirements.I clearly have sufficient capital to not only fund a 3.5% down investment, but to also make the subsequent mortgage payments.