I think the smallest bedroom is about 75-80 sq ft. as I have been saying there is economically obsolete  ( many of these older homes that need more work than what they are worth on a resale basis) and functionally ( it appears building the cheapest home to the very minimum UBC code is a prime example.I had a rental up in Kokomo I dealt with that heat was too much in the winter and the tenant said either lower or NO rent or I have to move .

There are some other lower income and high crime areas where you may be able to make money but it’s really tough to make the numbers work.

If this terms make the loan not viable, either look to structure the deal differently (creative financing, lower purchase price, etc.) or pass. 

What I saw from big lenders online was noticeably lower but I don't know how that impacts FHA lending. 

We thought about lowering the price, but wouldn't a buyer just offer a lower price if that was the issue?

Lower interest rates / lower down payment requirements are just 2 advantages of occupying prop. 

For lower price point properties you can get the same or better monthly net without having to worry about vacancy and turnover costs.

@Simon Lopez most policies can only go to $1M in Personal Injury, hence the need to buy an Umbrella policy.Check around for a lower cost Umbrella as there are options out there with premiums closer to $350-$400 for a handful of homes.

Do you honestly think a violent felony would score lower than an eviction?

Be very sure you have the right market rent, that you are asking them to pay the same as what they move to, or a bit lower.