My biggest piece of advice is to stay out of low end, inner city neighborhoods.

The lender probably won't work with you on that because that isn't how FHA loans work, they need to be sure that the house will have a value that justifies their loan amount so they can give you a low down payment. 

The more information is that the 7 year ARM can get rates as low as traditional financing (almost) and won't require reserve funds for other loans.

My most recent role paid around $140k between salary and bonus in Kentucky, which has a pretty low COL. 

You can go as low as 3% down with conventional.

I have very low paid expenditures, currently the property tax is $1,100 annually, I pay 65$ in insurance and I am setting aside 7% in capital expenditures, best of all no mortgage.

However, the interest rate on them tend to be low, so I would just stay current. 

The location has low crime rate, poor schools, city with plenty of amenities, etc. 

It was low end and very dated when I rented it out to the current tenant, and has seen significant wear and tear in the 5 years they've been there.

Start low and see what happens.