What Happens When You Can’t Refinance Your Investment Property Loan?

Investment property loans might have attractive terms in the beginning, but sometimes people fall on hard times and find those once-attractive terms have caused a need for refinancing.  Too often, however they are dismayed to learn that that can’t find a bank that is willing to refinance an investment property. Therefore, they are forced to find information about what happens when you can’t refinance your investment property loan.  Often, a loan modification can solve the problem, but unfortunately not before the situation has negatively impacted the borrower’s credit rating.

In 2009, the Federal Reserve started a new loan modification program that can help people whose refinance applications for investment properties were turned down by banks.  It is called the “Home Ownership Preservation Policy for Residential Mortgage Assets,” and is the first time the Federal Government has officially recognized that owners of investment property need help, too.  The new program applies to ‘residential’ mortgage properties, but it fails to specify that the owner has to live in the property.  It states instead, that the Fed will give priority to owner-occupied residential properties but not that it won’t help investment property owners.  This is a crucial first step in determining what happens when you can’t refinance your investment property loan.  The objective of the program is to lessen the stock of foreclosed inventory whether the place is a primary residence or an investment property.

This new loan modification program can change what happens when you can’t refinance your investment property loan, by merely amending the documents that go along with the existing loan.  This is a simple, yet crucial point to understand, as it results in the original loan documents staying in tact.  At times the modification agreement will do something as simple as modify the date of the interest rate adjustment by pushing it back for two years without addressing any other issues in the loan.  Each loan is different, therefore each modification is as well.

The two most common aspects of what happens when you can’t refinance your investment property loan, but do find that you qualify for a modification, is that there will be some type of payment deferment and a reduction in the interest rate or payments.  A deferment is defined by the bank’s allowing you to skip a certain number of payments without considering it to be a loan default.  They won’t forget ​about the payments, but will make sure it gets added to the principal.  This gives the investment property owner time to replenish his or her cash reserves.  Typically, deferments only last two or three months.

The majority of loan modification companies refuse to accept loan modifications for investment property loans, but some actually specialize in helping the owners of investment properties.  Regardless of  what happens when you can’t refinance your investment property, there are options available.  The owner just has to seek out a lender who is willing to help.