However, I wonder if we should wait a little more for the other shoe to drop--interest going back up to normal and depressing home prices even further.I hope this has not been too winded and TMI.

If I were in your shoes, I'd continue what you are doing until I had 6 months of expenses saved.

You get the idea.There is a notion by many in your shoes to max out PITI based on rental performance and that is not always the best way to make a good loan.  

I hate paying my real estate attorney, as she charges me $200.00 an hour, but in this case, I would call her if I were in your shoes. 

How would you handle this deal if you were in my shoes?

The new fact that the transfer to the trust preceded the investment loan substantially hinders the claim, I would think, since the original lender presumably did not rely on the equity in the house when making the loan if it wasn't a personal asset, and OP steps into the lender's shoes.

It's in a growing large town with a good economy, working class neighborhood/older part of town but the kind of place I would feel perfectly comfortable taking a stroll at night in, even with my kids.

I try to think what data I would want to have if i was in your shoes. 

If I were in your shoes, I probably would have at least tweaked the request amount just to avoid it looking the way I mentioned.

I recently walked in the shoes you are wearing right now being a military guy in SoCal and going back and forth on investing in state vs out of state.