Also, the VA loan doesn't have mortgage insurance at all.

Cost of flood insurance would be a factor.What kinds of numbers can you offer on a property?

You just haven't gone to Kinko's to make it pretty and you might not have done graphs, which I do because I like to see stuff visually.You will also need to buy it with an assement, and if the bank asks it (which it almost always will) make repairs and etcetera to secure their investment.They also might make you get some types of insurance, hold stuff in escrow.

Usually there is title insurance in place to help with these matters.

and that is with outdated numbers for taxes and insurance.

With that kind of equity, the elimination of mortgage insurance will offset the increase in rate (or at least soften the blow). 

But we could get some insurance to cover it.

When property was purchases Insurance was not purchased.

Hold in our own name and purchase liability insurance (incl. umbrella insurance)2. 

Do you think it's better to do a FHA on a true duplex and take the increase with the mortgage insurance or to do a cheaper single family where I could create a basement apartment as a makeshift duplex paying the 20% to keep the mortgage low and easier to cover with the rent it would generate?