Mortgage taking too long, sellers looking to take down payment?

My husband and I went into contract on a condo on Long Island on April 30th, 2010. The contract for this condo was written up so that it would be on or closed before June 30th in order to obtain the 8k tax credit. We worked with a guy from wells fargo in the beginning and applied for a conventional loan and things seemed to be going smoothly until around the end of may when things started to not make sense, and the next thing you know, (unbeknown to us) we were starting the mortgage process all over again with a different company because we were never formally given a denial notice from wells fargo and they decided to take it into their own hands to hand it off to a private company of their own choice. after going through the mortgage process AGAIN, and getting all the same paperwork, etc. together, we were denied from this company but were finally told it was because the specific condo association that we were purchasing in, arent approved for conventional mortgages, and they are only FHA approved. By this time it was already july 20th, and we were informed that the sellers of the condo were getting antsy, to say the least, and were on the fence about whether they still wanted to proceed. Our lawyer finally pulled some strings and had us work with one of the higher ups at wells fargo and we met with him july 23rd, and started the process all over again, this time going through with the FHA loan. things seemed to finally be calming down and looking hopeful, but this past week we were asked to meet with our lawyer (which usually isnt good news). As it turns out, the sellers and their lawyer came up with an ammendment to the contract of sale that would give us until september 24th to close. In the meantime, according to the ammendment, 5k must be released to the seller upon signing the ammendment, then another 5k to be released on August 13th, another 5k to be released August 27th, another 5k to be released september 10th, and finally another 5k to be released september 24th. This would be a total of 25k released to the seller which they are entitled to keep if closing doesnt take place by september 24th. Of course we’ve been in touch with the mortgage company to check up on the status of the mortgage process but because everything is backed up, they can never guarantee anything. Our lawyer suggested that instead of the proposed ammendment by the sellers attorney, we could propose to release 5k upon signing, and then an additional 2500 in 30 days. My husband and I have been through so much to get this condo and now we just feel like we’re stuck between a rock and a hard place. I dont know what we would do if we took the risk of releasing the money and then finding out that we cant close in time, and walking away with significantly less money in our pocket and knowing we spent 4 months of hell spending every waking minute working on this. We are really looking for advice. Even if law or mortgages arent your forte. What would you do if you were in this situation? Thank you so much for your time!
I appreciate your answers and they were helpful, but unfortunately, with the new banking laws, a lot of rules have been changed with conventional and FHA mortgage standards. Apparently, the conventional mortgage approval issue with the condo has only come into effect back in april when the banks changed the standards in order to lend money for the purchase of a condo.

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