We took out a home equity line of credit on our house and used that to purchase two rental houses.

Do you run a background or credit check or take a deposit?

Try calling Navy Federal Credit Union. 

Credit is not great and funds are not there yet but hopefully going into 2019 I’ll be ready to purchase my first home through an FHA loan.

Property in question is a mixed use investment property, not owner-occupied.Good credit score.Old property.High cap rate.

When credit dried up and property values decreased, those people were suddenly underwater and on their way to insolvency. 

Conventional financing has very specific rules to follow and falsifying information on the application to get a better interest rate or to qualify and then subsequently closing on the property is a really big deal.There are loans out there that do not require seasoning of funds, would allow your friend the investor to not be on the loan (or be on the loan if he/she wants depending on credit), but it's not a conventional loan and the interest rates are not conventional interest rates.  

Talk about a house of cards. 

For scenario two, your gonna get a loan and a line of credit, then refi once its done , and then sell?

Usually it's some kind of Lowe's gift card or similar, stuck somewhere in my closing package, or maybe a restaurant gift card.