The mortgage payment will be 3.5K.

If it this is a fairly typical tenant for the area, maybe switch to weekly or bi-weekly payments on a new MTM lease and charge a pet fee.

First time home buyer to qualify for certain down payment assistance programs and loans is a person who has NOT owned for the past 36 months.FHA doesn't require you to be a first time home buyer.

Figure out your equity and make payments. 

Then the judgment would need to attach to the property and then you can foreclose.Issues that could come up are I assume there is no third party servicer to claim the payments were or were not made- so there is a he said she said - if they also occupy the property and statements were not sent you cannot charge interest typically on the loan.You will need an attorney involved to see what if it is still collectible.

Low purchase price and owner-occupied loan to keep down payment and carrying costs low to fund the construction costs.

As mentioned above you can use your down payment as leverage buying multiple properties with 25% down and having millions of $$ properties owned is better than one property paid off. 

I would love to hear some of your opinions on what amount is ideal for a down payment, closing cost, ect.

Can you handle the extra monthly payment? 

If you have good cash flow on your properties, there is an argument to kill some of the debt with high interest of high K factor (large principal, small interest payments).