Keep calling other banks and credit unions.  

While we do have cash saved up, we'd prefer to work on our credit for another year before looking at getting a mortgage or commercial loan to possibly do a fix and flip.If you were us, would you a) use our cash to purchase, fix and flip something older and cheaper outright which seems like a huge undertaking for our first deal, b) use our cash as the downpayment/skin-in for a hard money loan (balloon) while we work on conventional qualifications to refi at a lower rate in 12 months, c) My in-laws are in the process of purchasing a seller-financed home and are interested in "renting-to-own" their place to us.

He is hedging on changing over to either one because of their credit issues.

After you find one and establish credibility, then it's very similar: credit checks, appraisals, etc. 

If I own a primary home (State A) and then buy a second home (State B) as vacation home - thousands of mile away - and eventually move to vacation home due to my job change - is it possible to covert the primary home to vacation home (refinance to get lower rate - but that won't work because primary home already got the lowest rate?)

How is your credit?

I woukd say find a credit repair specialist and get your credit score up

He has credit issues, so he already has damaged credit, so BK may be an option that doesn't have tons of downside. 

They talk about credit, mindset etc. 

I wouldn't trust anything the seller says is the "lowest" they can go.