Vancouver, WA · Member since 2018 · 29 posts · 9 votes
If I purchase a property and pay for all the rehab with cash, will a bank will require a 6-12 month seasoning period before they will be willing to offer a conventional loan on that property?
Or does the seasoning period only come into play if I initially purchase the property with a conventional loan, make the renovations, and then try to refinance the property once the ARV has increased?
@Tim Johnson really? Anybody that does conventional refis without seasoning on single family, with 75% arv of new appraisal value?
Banks will do delayed refi but only 75% of purchase price or appraisal value, whichever is lower. I am looking for someone that dows that with 75% of the appraised value so i can refi a remodeled rental quicker.
If you've purchased for all cash why not a HELOC? 80% LTV on a NOO at PenFed CU. You can even do it interest only. As you pay the balance down you have more access to cash.
The seasoning period applies whether you purchase with cash or a loan. This is the case with conventional, Fannie/Freddie loans. I believe it is 6 months but certain banks might overlay additional restrictions up to 12 months.
I use a portfolio lender which is far superior to conventional. Significantly less guidelines as it is more relationship-based. And there is no seasoning period with a similar amortization and interest rate as conventional.
Others have mentioned the delayed refinancing but I really think that rarely is a good option. You can only pull out maximum what you bought the property for.
One can indeed pull cash out within the initial six months. Quote from Fannie Mae's policy on Delayed Financing:
Borrowers who purchased the subject property within the past six months (measured from the date on which the property was purchased to the disbursement date of the new mortgage loan) are eligible for a cash-out refinance if all of the following requirements are met:
The original purchase transaction is documented by a settlement statement, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee's deed (or similar alternative) confirming the amount paid by the grantee to trustee may be substituted for a settlement statement if a settlement statement was not provided to the purchaser at time of sale.) The preliminary title search or report must confirm that there are no existing liens on the subject property.
The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property).
Understood. But that’s what I mentioned at the end of my post... the cash out refi has no seasoning period but the restrictions are prohibitive to pulling out all of your investment if you are doing a rehab.
@Daniel Soovajian regardless of how you purchase, cash or loan, lenders use the purchase price in the first 6 months, after 6 mit has yiu can use the new appraised value.
On delayed financing by Fannie, the most important aspect is often not known by borrowers, that's the source of funds. You still need to source the funds use to purchase. Sometimes buyers think they can use mattress money and then they are shocked when they are told they need to source the funds used. And yes, LTV is lower at 75%, rate on delayed financing is similar with a purchase but the refi will have a higher rate, two very different products.
@Tim Johnson Do any of these no seasoning refi-friendly lenders operate in other states besides Michigan? Also, will they do no/minimal seasoning for a cash-out refi? Thanks in advance.
The seasoning period applies whether you purchase with cash or a loan. This is the case with conventional, Fannie/Freddie loans. I believe it is 6 months but certain banks might overlay additional restrictions up to 12 months.
I use a portfolio lender which is far superior to conventional. Significantly less guidelines as it is more relationship-based. And there is no seasoning period with a similar amortization and interest rate as conventional.
Others have mentioned the delayed refinancing but I really think that rarely is a good option. You can only pull out maximum what you bought the property for.
If you add your rehab cost to the HUD; you can pull out all of your cash. 100% of HUD or 75% LTV, whichever is lower. Careful though, if you want to pull any more than you put in; you have to try to go the LTV route instead. Talk to your title people, they shouldnt care if you add your rehab cost onto it. One of the very recent podcasts talks about this.
Wow - thanks for all the responses! Here's my attempt to try and summarize all the awesome information provided here (and make sure I'm not misunderstanding your responses):
After I purchase and rehab a property, I can get my money out immediately if I find a special type of lender (e.g. portfolio lender) that allows this. Or I could get a non owner occupied HELOC to tap into the equity).
If I want a conventional Freddie/Fannie mortgage though, I should wait at least 6 months (or possibly up to 12 months - it depends on the lender) for the seasoning period to be satisfied. Once the seasoning period is satisfied I can get delayed financing based on the new ARV of the property. I can get delayed financing before the seasoning period is satisfied though, but the big downside is that I'll only be able pull out money based on the original purchase price, not the new ARV.
Two important notes to remember with the delayed financing path:
1) To Diana's point - I need to properly document the funds used to initially purchase the property
2) To Jason and Kyle's points, to pull the most equity I can out of the property, it will be based on 100% of HUD or 75% LTV, whichever is lower.
If I go the LTV path, an appraisal is needed to determine the new value of the property, post renovation. Then I'd get a loan for 75% of that ARV.
If I go the HUD path, before completing the initial cash purchase of the property, I need to provide documentation (e.g. invoice estimates) to the title company on what the projected rehab expenses will be, so they can include it on the HUD. Immediately after completing the cash purchase, the contractors receive their payment in full (for work they haven't performed yet)
Thanks for recap @Daniel Soovajian I'm also currently trying to figure out what the best BRRRR strategy on a deal I'm analyzing. Just a note on the NOO HELOC, seems like this would be the easier option, but may be more difficult to obtain one if you have 3+ mortgages. That's the issue I'm currently running into.