If i plan on doing a refinance on this home(BRRRR) which one should i do ?

Your best bet is to convince her to move.

Refinance with local portfolio lender at balloon payment and pay back the seller the principal amount.Not sure if it is wise to be going 5 years interest only and building no equity in the property besides how much it appreciates and my down payment.

@Heidi Foster beware betting long with short term money!

Would it be a good idea to get a hard money loan to rehab a house then refinance into a first time home buyer mortgage program, even if that's possible,  I'm not too sure with the rules and regulations.

A house hacker may be ok with living in an area that is gentrifying or with good fundamentals for upside (you are betting here).

Most Refinance lenders provide a loan amount that is 70% - 80% LTV.  

We see couple properties with FSBO (cash only so we are thinking of buying with cash and re-finance to pay back to the whatever the initial money resources) but not sure how to go from here...

They have been looking into refinancing the house and were wondering if they can/how they can refinance it as a primary residence.

A refinance into a higher LTV non-recourse loan could free up some additional capital, but how much the lender would go could be limited on a recently rehabbed property.