The seller is threatening to take our earnest money deposit when we tried to cancel during the inspection period. 

A million dollar LOC goes through several committees at the bank, even if you are Bill Gates.Just ask for a 10% or higher deposit if you decide to sell to him.

You will get a feel of things.The biggest thing for you now though would be to keep saving that deposit.

Deduct these expense from the deposit prior to returning.  

Is that from a deposit that I would get from the buyer?

If I was making the DP OOP, I'd be on the hook for thousands more than I anticipated and would most likely have to pull the deal and loose my deposit.

However, one of the banks that I obtained my LOC from WAS willing to accept that money as the down deposit as long as I went with them for the mortgage as well. 

You paid $100,000 that's why I subtracted the $20k deposit out of the sale price.  

I would collect a non-refundable option deposit from them up front, create a cash flow every month and if the tenant/buyer exercised their option down the road got paid again. 

(DO Ask for receipts if it's for material deposits.)Share competing bid information and "bid shop".Encourage bidders to get into a bidding war.Try to low-ball contractors.....they will try to cut corners or make it up with change orders a lot of times.And finally, DON'T assume that "All Contractors are Crooks" or that "All Contractors Will Rip You Off".