Have you done a cash-out refinance on an investment property lately?  What was your experience like?

I spent the last several months working on getting a cash-out refinance mortgage on a rental property that I owned free and clear.  I’ve applied for and gotten mortgages many times in the past, so I though this would be relatively easy.  Not so much.

Some of the problems we ran into:

• I have owned the property for just under a year.
• My company, which actually owns the property, has been in existence for only one year.
• My biggest income source less is than a year old.
• Even though I spent a great deal of money to rehab the property and it appraised where I wanted it to, the lender would only use my purchase price as the property value.

Problems with the loan that I couldn’t fix:

• Variable interest rate after 8 years
• Prepayment penalty for the first 3 years.

I normally do not so variable interest rates or prepayment penalties but these things popped up on the radar just before closing and my broker wasn’t able to have them changed.  We had a deadline we were meeting with the funds from this mortgage so we were at a major disadvantage as far as negotiating goes.

Not every lender makes decisions this way.  I am on the lookout for a better lender for my next mortgage.