My reason for considering conventional is: I have the money to put 20% down, the mortgage payment would be lower, which reduces my overall cost of living.

I know nothing about you, your sex, race, religion, education, career, etc. 

Track all properties income and expenses you are responsible in report form with people you feel comfortable with and understand your goals and all of you might reduce some of your expenses and increase your income.Do not assume anything.  

I suspect HUD will reduce the number of new vouchers it offers, reduce payments to landlords a bit and maybe cut some overhead (although government is never good at doing that, so who knows).

I haven't done any lease options myself, but in my experience as a realtor, you will greatly reduce your pool of potential buyers.If your property has increased that much in value, another option would be to carry back the loan yourself.

We are trying to reduce sound transmission between our ground floor and the second unit apartment, both of which are completely finished.

Sex offender registry.Count, city and state arrest lookup.Inmate search.County civil record search.Several other websites that search for infractions.Google.If they have an address in another state, city, etc, I check there for criminal activity as well.I talk to their last/current landlord and check tax and registrar of deeds to make sure I am talking to the right person.That is all before I even think of running their credit.  

Your best bet is to reduce your spending and save more, or engage private lenders.While you have good credit, open a free line of credit from a bank or credit union.

So for example agent can overprice bank owned property and it may seat on the market for months, while they reduce price by a few thousands every couple of months, till it will even start register on peoples radars.  

If they purchase, the option fee amount paid will be reduced from the purchase price to lower the purchase price on the sales agreement, after they exercise their option to purchase.* The property is not sold and title is not transferred until the tenant exercises the option to buy.