My wife and I decided to raise requested rent on both sides of the duplex to $1025 and $1125 per month (plus $25 pet rent, based on experience with pets so far) and still generated plenty of interest.

Be aware that FHA financing will be a negative though.

Sounds like you are aware of your options.

I receive messages almost daily from Hard money lenders looking to finance my deals but once I tell them that we could be in the deal 18+ months they quickly back out, You aren't always aware what strategy you will be exiting with and most banks/lenders would see this as too much a risk.

Is anyone aware of legal issues around asking what their plans are for income once the baby is born?

Im surprised no one mentioned this yet....but in most places as far as I am aware, commercial properties are exempt from disclosures. 

To get to this level, you could either pay down the loan through payments or make some improvements to the property that raise the value or wait for the market to appreciate on it's own. 

I'm just curious what things I need to be aware of when dealing with HUD and USDA contracts?

You stopping by, letting them know the situation and making them aware that legally a different person can make the purchase and not care for their input or best interest. $200 below market if they never leave could be one of the best things to happen to you.

Here is one strategy I am aware of - the contractor would put together a budget beforehand for your review.