If I understand this correctly, I think I could pull out $60,000 for a 10% penalty ($6000).

This is just my opinion, but maybe an Interest Only Option with a lender would be a good choice so you can cash flow from the start and then refinance again whenever a prepayment penalty is completed. 

As a licensed contractor if I dont follow the terms of the contract I can lose my license and face civil penalties .

No pre-payment penalty on the loan.Any help would be greatly appreciated!

Is there a pre-payment penalty?

They have piles of their own money and seem to close the most loans with the least points and no pre-pay penalties.

I am approaching my first deal and looking for more information on using 401k savings as down payment without the penalty?

I've located the current owner and calculated all the fees including Interest and penalties. 

Otherwise, there is no way around it and if you are not careful may be subjected to FICA back taxes, penalties and interest that could shut you down too.

@John Garrett were not any type of auditors, but telling everyone your friends are going to commit mortgage fraud by buying a second home they will rent out for more than the two weeks per year that the IRS allows, is not a good idea.That aside, make sure your agreement covers not only splitting the profits, but also who is in charge, penalties for not paying their share of losses, and most importantly, how one of you can get out of the partnership.