Water heater venting should be performed by following fuel gas codes and manufacturer’s requirements, which is probably what the information provided by the Home Depot was.
There are vent connector tables in the fuel gas code that are used to calculate proper lengths of vent pipes above the water heater’s draft hood and they all start with a 12" vent rise. This first 12" of a straight vent pipe above the draft hood is recommended (not a code requirement) as a minimum for the water heater to operate (discharge exhaust gases) properly.
If there are no chimney draft problems, the chimney has been properly configured, and the water heater is getting proper amounts of combustion air… I don’t think that 3.5" will matter. However, that 3.5" might become a problem if you get Carbon Monoxide poisoning and try to blame it on the WH’s manufacturer.
Therefore, I would stick to the recommendations and try to postion this WH vent connector in such way that you keep the rise as close to the minimum recommended 12” or maybe find another water heater brand that offers shorter tanks.