Depending on fluctuations in your market, it is a lot easier to owe more than your house is worth when you are putting 3.5% down in comparison to the 20% down on conventional loans.  

In the La Crosse area, typical rents are about $300-$400 per bedroom, with some obvious fluctuation by property quality.

Any vacancy or negative fluctuation in the economy/market & you start losing money.

I just bought David Greene's book on long distance RE investing because I know that the midwest holds a lot of opportunity as far as minimal market fluctuations and cheaper properties. 

No consistency.So the big question is... what is the big driver behind rent fluctuations?

Maybe if we did a large enough down payment we could still get a loan, based on my husbands income (which fluctuates) and our other rental income?  

I cannot argue with a straight face that the market value fluctuates monthly and equates the actual monthly collection.The overall idea of using an S-corp to control SE tax is valid, but it needs to be implemented differently. 

Most HELOC's interest-rate is tied to prime and will fluctuate when the Fed raises rates. 

I say wait a year or so because with children, expenses fluctuate and I would want you to wait at least a year to see how good of a management you have over the finances before taking on the landlord endeavor.

HELOC interest rates fluctuate and most HELOCs have a balloon date.