I recommend minimum 4 coats with poly.  2 seal coats with buffing between and 2 final coats  You can use water base as  well if you prefer, finishing will dry faster allowing for more coats.

But right now good deals have dried up.

My  contractor has advised that it would be more cost effective to simply furr out the walls and put up a nice smooth dry wall instead of trying to even out/improve the current situation.

I struggle with this as well.I personally think VA loans are pretty cut and dry, I don't want to hear more discussion on how to buy a 4-plex and rent out 3 units to pay for your own.  

The inventory is there while it’s drying up for those REO buyers who are waiting for inventory that is never going to show up.2.Pricing.

Next you will want to dry out the area with a dehumidier and negative pressure air scrubber to eliminate any mold spores in the air.  

This means that you clearly have no intention on purchasing this property if you couldn't find a cash buyer and if you can't find one then you're going to cancel the contract and leave the homeowner high and dry.

okay here is a little story about this house. i bought the 1200 sqft house for $14k from a owner, and spent around 12k for remodeling such as a new wooden floor, paint inside/out , window and tiles and some new dry walls.  

I am looking to buy cash and fix and flip, but wondering if I should just keep my powder dry and wait. 

Dry naturally and repeat.If it's a flip, I'd source wood look laminate or the above mentioned tiles.