@Kevin R. is absolutely right, we have the problem so find a solution.

Focus on mutually supporting solutions instead of assigning blame, at least when you are talking to the bank. 

It wasn't my first choice to do this so soon, but starting out, I couldn't find another solution when purchasing properties in this price range.

Although the colors are a little bit unclear on my screen, it looks like you've really pulled together everything with your floor and countertop choices.As noted above, most people are doing tile these days on the back splash, one of the most popular being white subway tile because of its price. it's not clear whether the trim in the rest of the house is white, but, if it is, the easiest solution is to paint the window frame white too and white subway tile would be your least expensive option.

I would like to have some creative solutions to bring to the table rather than put the onus on him (although he has done many partnerships before).For example, would it make sense for him to take a note back and a lien on the property to cover my 50% (e.g. interest-only, 7 or 8%) during the rehab, then convert to a traditional 30-year payment (with him) or re-fi my portion (with a lender)?

I'm set to close on this REO on in 2 weeks & need an budget friendly solution to fix the sagging, cracked concrete front porch!

SOLUTIONS!

If I could pick the home up as-is and just monitor the situation while continuing to have it as a rental, would that be an option?

Without more info, I'd prefer to install one new high efficiency unit and either figure out a RUBS solution or just set the rent accordingly to include heat.

Give them a small job and observe/monitor to see what they say and how they perform.