Refinancing Rentals Valued Under $50k

[Kelli Fitchlee]

My husband and I purchased a property last month in Detroit.  We paid cash ($20k) with the intent to refinance the deal and purchase another.  Our goal is to hold for passive income.  I have another one under contract for $38k that we will pay cash for also.

Here is the problem..I have heard from a traditional lender that these can not be refinanced because the cost to refinance the loan value exceeds the legal limit, something like 20%.   Can anyone explain this better?  I am looking for what alternatives are available to get our money back out so we can purchase again.

Thanks!