Then the bank is acting funny about my dti ratio since I've already got one investment property and one person home mortgage. 

I am a mortgage broker; I haven't done any loans in Detroit but this is where you do your due dilingence by calling the title company and finding out what their cost/fees for doing the settlement will be; you would have to give them the subject property address, and tell them that is an investment property. 

OR you can take a smaller loan and leave more money in the deal to increase your cash flow due to the lower mortgage payment.How do you guys navigate this?

For instance, what is your note worth, what is the house worth, monthly expenses including mortgage, and gross rents, ect.  

He wants to rent it because of  that estimate even though we would be losing money every month because our mortgage payment is $2700.

The topic of tenants using fake id online is concerning and poses potential risks.

The most obvious is that you will be able to offset your mortgage with renting out a few rooms.

I have homeowner's/hazard insurance on the property through my mortgage, but I do not have any additional landlord insurance or other coverages.  

20% down fixed rate 30yr mortgage How did you add value to the deal?

I run my entire "empire" using Excel/Sheets for tracking expenses, Apartments.com for online payments, MysmartMove for credit/background checks, DocuSign for electronic signing, and Zillow & turbotenant for posting up listings.