seasoning? 3 posts by 2 users

Posted: 09/20/2008 at 12:47PM

Seasoning is an issue that can really hurt an investor. By the time an investor learns what Seasoning is...The deal is usually in serious trouble.
The times seasoning usually hurts investors is when they have fixed the house and are trying to sell it. A LOT of lenders have seasoning requirements and FHA & VA (unless it has changed) require 6 months of seasoning.

What is Seasoning?
Seasoning is the length of time a person is the owner of a property or is on title as owner. So if you own a property for 5 months, then the title is 5 months seasoned.
Lenders use seasoning to ward off flippers. They get nervous when someone buys a house for $50,000 and turns around to sell it two months later for $100,000. Even though a house was renovated and is actually worth $100,000, the lenders still want proof because they don't want to find out after they funded a loan that the house is still worth only $50,000 but, they loaned $80,000 on it.

What many people (even some staff people with lenders) don't know is that seasoning is NOT required (FHA & VA is) or mandated. It is "suggested" that lenders abide by self imposed seasoning guidelines. My experience is just about every big bank and mortgage lender sticks to some self-imposed seasoning guidelines. Most tend to be six to twelve months but, some are less.

This has been my approach to seasoning with houses that I have rehabbed and tried to sell...

First, I work closely with "investment mortgage brokers" because, they tend to have better relationships with lenders that don't have strict seasoning standards and often times they work with smaller lenders or private lending groups that don't require seasoning at all.
There is usually a catch though. The interest rate tends to be higher. Sometimes two to three points above prime.
Remember that seasoning really affects the person trying to buy the house from you when their loan officer has been shopping their loan application to the big banks that also offer commission incentives on certain programs that loan officers can make more money on.
When the buyer finds out that Wells Fargo won't fund the loan because the house has only been seasoned four months... The buyer backs out and looks for another house, leaving the investor (seller) scrambling with increased holding costs.

So, any house I plan to re-sell I immediately assume that FHA & VA financing for a buyer will not be an option. That can translate into a lot of qualified buyers that aren't candidates to buy your house.
I make sure the listing agent is aware of the potential seasoning issues and have them note on the listing that interested buyers are likely to encounter seasoning issues for funding if they use their own bank, lender or mortgage broker or loan officer. Also, note that FHA & VA will not be options until title is seasoned six months.

Because of the potential funding issues a buyer will face with seasoning, I will offer an incentive to the buyer if they work with my investment mortgage broker for their loan. Sometimes it means I cover closing costs for the buyer. Other times I will offer a seller allowance which gives cash to the buyer at closing and I have also compensated the buyer by paying several months of their mortgage because of the higher interest rate a buyer is likely to have.

Bottom line... Disclose! Be upfront about the pitfalls that can come up and find a competent broker who deals with a lot of investment loans because, they know which lenders will loan and which ones stick to their seasoning rules.

Hope it helps.

Jim