Once over that limit, no matter if there is or is not any debt, PenFed will not move forward. 

., The half you lived in will be tax free to the limits of the sec 121 exclusion as everyone has said. 

--A requirement to insure the STR through a limited set of STR-specific insurers... discussed ad nauseum elsewhere on BP.

The GRM for the city limits varies between 60-85.

I know I missed out on quite a few properties by limiting my scope so much.

But the property would NOT rent at 1% of purchase price, unless I bought a crack house and flipped the hell out of it (perhaps wise, but I know my limits)Due to travel time to work, I'd HAVE to purchase near Stockton: Lodi, Manteca, perhaps Elk Grove.

Silver Sands is amazing, such a beautiful park.Madison, Old Saybrook, and Mystic come up often, all beautiful, but limited options.   

With your limited construction experience, I'd either bring on a construction manager or as I mentioned (and prefer) include administration services with your chosen architect. 

Split the down payment and make two smaller down payments on two separate houses, a year apart (I think that's the limitation on FHA loans).

I recently purchased a home in a small town within it's city limits.