We did a 15 yr mortgage so we've built some good equity.

Negative equity mortgage.

There is a five year look back where things can be undone, so I'm looking for a workaround.As they will be moving to be closer to more family, I suggested using cash from the aforementioned accounts and the full equity in their current house and .buying a much more expensive house. 

It is a better proposition to pay a flat fee then to give away part of the equity in your deal.  

My only nest egg is about $60K in equity in my primary residence.

if so you are now the bank.you want a mortgage or Deed of trustand a promissory note.you can get a 3rd party appraisal if you wish or you can establish your equity protection on your own.then you need a lenders title policy when you close.pretty simple stuff really.

I say that because most people gravitate to FHA because of the low 3.5% down payment requirement but you can get that with a conventional loan which is a lot of times better because the mortgage insurance goes away on a conventional loan once you have 20% equity whereas FHA loans have mortgage insurance for the life of the loan if you put less than 10% down.

Understanding that it can depend on the deal that may be available I wanted to see if anyone else had any thoughts on paying off their primary residence (which in my case would free up about $650/mo in cashflow) or investing in a rental property that would begin growing equity and have a little bit of cash flow.Any feedback would be appreciated as this is my first go.Thanks!

Buying it all cash and hope to take equity out later on to buy another property. 

To reduce the cost of the survey, convince your neighbor to split the cost.If the survey ends up in your favor, and your neighbor still has an issue, find a good attorney (via referral).