Caleb Heimsoth try your local credit union.

Had our credit unit do a HELOC on the investment property, pulled out 85k then took 21k of it to use for closing cost on new property which settled today. 

I understand this will lower my credit score and as multiple lenders each get my credit score/report, I am concerned that it will heavily impact my credit score negatively.Are there strategies that you recommend to workaround this or is there a way to do this effectively without heavily impacting your credit score?

I initially hoped to ask the seller for a credit to fix however I am hearing that the amt of credit you can ask the seller is limited by the closings costs amount (in my case max it will be $12K) so I am not sure what to do.I am aware of the 203K option, but I am not sure I want to go that route as I am comfortable with my plans for down payment and monthly expenses currently. 

I initially hoped to ask the seller for a credit to fix however I am hearing that the amt of credit you can ask the seller is limited by the closings costs amount (in my case max it will be $12K) so I am not sure what to do.

In saying that, she was also clear that I had built up substantial history that indisputably puts the property in an investment class, not a vacation home masquerading as a rental.  

I currently have a credit score of 720 but no cash.

If you're committed you'll do whatever it takes,"  - quote credited to John Assara.  

The lawyer told them that when they sell the house they can negotiate a settlement for perhaps 1/2 of what they owe.Their credit has been significantly affected by the heloc default.

For FHA or conventional they will require 2 years of income history ... unless say you where in school the previous year and then started a business they would probably accept only one year.