My wife and I decided that we would rent out the house but because we have received a grant for the down payment and closing costs from the city of Baltimore, we are wondering if it’s okay to rent out the property without any issues or they would check to see if we live at the property or we did a mortgage fraud by renting out the property for not living it for 7-12 months.

issue will be if they will not sign it.

I think this is a creative idea with a lot of potential, though also with some unique issues as mentioned above. 

I've found a resource that brilliantly addresses these issues, offering extensive information for investors seeking to enhance their understanding in this field.

One of the tenants appears mentally ill and another has anger issues.   

Most areas are seller-friendly now so even if you can't make it assumable, what's the issue with a traditional sale?

@Gavin Jex seems like they are trying to help you out, but exposing you to tax issues.As @Chris Seveney already pointed out, one of you will be taxed on the 0% interest loan as a "gift".The other issue is that you will get the property at $170k roughly, and then be exposed to capital gains of the difference between that amount and the market value.Highly recommend you speak with an Estate Planner for possible better options.

The process was straightforward, rates and terms were flexible, and I completed my home renovations without any issues

Texas is notorious for foundation issues so pay attention to that. 

Pre-screening can lessen the number of unqualified applicants and lessen this issue, but when a landlord decides their process they usually choose whether to pre-screen or not based on their own needs and saving their own time and effort not for the benefit of the tenant/applicant.