Would this be a Security issue? 

Personally, if you can't come up with a 3.5% dp for a 200K property, you are not ready to buy a house yet....I feel that if you can't come up with 20% it's the same, but if you have stable income in a secure field, the 3.5% down payment may be worth the risk.

Jon that banner is 3 miles wide and 15 thousand feet high!

It sounds like this would be considered a personal loan, secured against the house.

We recently secured a property in hopes of finding a money partner, with us being the working partner.

Wouldn't it make more sense to get the pre-approval first that way when he identifies the target property and puts an offer in he can tie it up, do 14 or 21 day loan contingency and use that time to secure the loan?

All security deposits held by the seller are transferred to the buyer at the time of closing.

Just go into it with your eyes wide open to the risk.  

Equity Build and EquityBuild Finance are being sued by the Securities and Exchange Commission for running a Ponzi scheme. 

The walls are brick and it tapers out to maybe 8 feet wide, and its 8 or 10 feet deep but who knows because of the water.There are 3 or 4 rusty pipes going in and out, mostly towards the house.