Most conventional loans conform underwriting standards and are backed by Fannie Mae or Freddie Mac.

You will find that a lot of single-family homes in the area are set up to be split into non-conforming duplexes.

The moral of the story that dovetails off your rant is that as long as the local and state level government is putting in laws the more adapting and conforming to those new laws need to happen. 

In my opinion, since lenders are all selling to the same secondary market for conforming loans, ultimately the rates will be very similar when it comes time to lock the rate. 

This is allowed for conforming loans, but no all lenders choose to actually take this extra step or sometimes their loan officers don't know. 

So, you your exit strategy, assuming its a hold, needs to be qualified before you even buy.If you are using a LLC to hold Title, then you won't be eligible for a conforming residential loan. 

If this is a make-or-break part of your strategy, make sure your property conforms to all local short-term rental laws before purchasing it.AirDNA is a great resource on how to estimate what your income could be if you opted for this strategy; their reports are a bit expensive and they bill on a monthly basis, so make sure to get all the information you need and then cancel your subscription. 

I am contemplating doing a cash-out refinance to pull maybe 500k-600k (to keep it under conforming limits).

Non conforming or unpermitted? 

You have to be careful since the non-conforming unit's income is not lendable (as in you cannot claim it as income for future lend-ability).