Or do I cash out the 401k, take the penalty, and have freedom for financing?

The penalty for failure will be significant, to put it politely.

There is a 5 yr prepayment penalty.

Lot of stock owners have net worth of 100k and when stock dips they freak out and take 70k back and pay penalty.

Tell her you are letting her out of her lease with no penalty and will return her deposit after she is out. 

This is why agency loans have more restrictive yield maintenance, and defeasance prepayment penalties (they don't want you to immediately jump ship, and leave the mortgage bond holders handing).

Biggest clauses are: who's responsible for what, what are the penalties if someone doesn't perform their duties (including forcing them out) and what happens if one party wants out and the others don't.BTW: your brother should do this with his new girlfriend BEFORE paying part of her mortgage!

No penalty to let project die slow death and collect salary, travel and advertising money from it.This is data, everyone should make their own data driven decision based on it.

@Matthew Mclean May not apply to your loan but for others that read this they may need to make sure there is no pre-payment penalty.

Prepayment penalties- usually 1-5 year terms.