Advice Needed On Purchase/Loans

[Beau Alesi]

Sure you'll need a lot more info to advise but anything may help.

Own two houses. One a rental and one we live in. Have about $300k equity in one and about $150k in another.

Have HELOC on the one with $300k equity in the amount of about $30k

Have an opportunity to buy a short sale house for ~$430k. House has been appraised  for $690K.

The problem is getting the money for the down payment. 

Have been talking with friend of the family broker.

I make about $175k but still don't qualify for conventional mortgage.

He said I can get an investment loan but that would require 20% down payment and interest rate at about 9%.

I don't have liquid funds to come up with the $20%. 

I do have about $750k in my 401K and my wife $110k and we're thinking about taking the money out but then get penalized 33%.

My wife is not working anymore so she can't do a loan from her 401k and I already have one.

I may be able to take a loan out in that amount but not sure.

Any other suggestions on lending options for this mortgage that are not an investment loan with that crazy interest rate? 

If not then suggestions on most cost effective way to obtain the 20% down? Thanks.

[Sim Anderson]

Have you considered a 401k loan? I used this option to fund the downpayment on my first investment property. Although you have to pay it back, the rate is incredibly low and all of the money goes back to your retirement account rather than a bank and you don't get hit with a tax penalty. It also doesn't show up on your credit report since technically it's your money.