6 Month Seasoning Period Issues

23 Replies

Hey @Justin Munk  Yes, that is pretty standard for seasoning. Some lenders can require up to 1 year. Funny you should mention seasoning requirements. One of my lenders today let me know they lowered their seasoning requirements to 3 months from 6 months. This is a private money lender with rates at 5%-6%. Time is money.

@Justin Munk

I ran into this problem some years back. In my case, the bank also required 6 months of seasoned funds. They ask me how I plan to do the down payment, and I said I have a HELOC of $120K to cover the remainder of the $14K down payment required, having already paid $6K for the $20K down. The bank said NO, must be seasoned funds. Turned out my wife help manage her mom's affairs, had a joint account of over $100K opened for over 10 years. The bank approved it based on that. But at the closing, I paid with a check from my HELOC anyway. Never touched my mother in law's money.

Chatted with a friend at work, he was looking to invest and knew of the requirement. He worked out a deal with a co-worker to have his name added to another co-workers account, who had the money market account for a number of years. He paid a small annual sum for this accommodation. This is just for show, just as in my case, the funds will be from another source at closing. I never heard of it done this way, but worked well for him. In this case, and my mother in law, the funds would be shown sitting around way longer than 6 months.

Originally, I thought of taking $20K to $30K out of the $120K HELOC, put it into a money market fund to season. That would be another way to do it.

If you purchased the properties with loans, commercial lenders requires 3 months seasoning. If you purchased with cash, they requires 6 months seasoning. The rates are around low 5s' for 30-year fixed, plus 2-3 points.

Well stated by Mr Wang...if you acquire the property with financing, I have seen the refi/take out lender willing to lend rate and term (no cash out) in less than 6 months time. Just make sure your acquisition loan includes your renovation dollars so you can get your renovation dollars back. If you purchase with cash or want cash out on the back end of BRRRR, I think you're stuck with the 6 months seasoning unless you opt for private money. Plenty of private lenders willing to waive the 6 month seasoning but the private folks are not going to 75-80% LTV nor can you obtain a 3-4% rate. If you're really cranking though and looking to build a larger portfolio, you'll soon tap out at the conventional level due to DTI or more than 10 so you should start getting familiar with private money now.

@Wenda Wang

This problem has always frustrated me, what you you say is the best option? Bigger pockets podcasts says go to local credit unions and banks but I've run into the same issues 6 months to a year. Any idea on how investors can move so quickly buying 10 plus properties a year? Doing the standard conventional way at 2 a year will take 5 years.

I'm working with a non qm lender but the best they are offering is 80% purchase and rehab combined. I may have a better chance in catching big foot then finding this lender with no seasoning based on the new ltv.

@Ryan Keenan , If you are buying properties in a livable condition and tenants in place, you can buy 10+ in one loan. No personal DTI requirement, all depends on the cash flow of the properties. If you want to do fix and then keep as rental, we also have a program to connect the two loans (fix and flip loan, long-term fixed loan) without a seasoning requirement. This program can only do one property at a time.

If you paid cash definitely  ask around. I’ve certainly been offered a loans that are only good  on properties recently purchase with cash, like in the last couple months. They know people are using the cash to make cash offers and then returning the money. Last time I think was Clark county credit union or Nevada state bank. 

@Justin Munk

Perhaps to help clear up issues...  There is 6'ish months for the loan for sure, and a 6 month period for the "Title" which honestly haven't fully figured out.  

First, you need to understand what is a conforming loan.  Hopefully, you are aware that most loans are resold/purchased by Fannie Mae and Freddie Mac.  So, these quasi-government entities set the standard required for lending.  So, if lenders follow their rules, they can resell them and recover their cash so they can originate more loans.

Okay... So, they have a rule that if the loan is pay'ed off prior to 6 payments being made (hence the "6'ish" months since its really payments), Fannie Mae/Freddie Mac will "chargeback" the lender. So, the lender is penalized; and this is why its not a pre-payment penalty. (this "chargeback" has to do with the discount points paid between the lender and fannie mae, etc.... its finance stuff that I've read about but don't remember). So, that is why you can't just refi in under 6 payments. This is why the "traditional" BRRRR method calls for buying in cash.

As for the second, all I've figured it out via my lender, the rules are the Title is "not supposed to" have a transfer within a 6 month period.  The way the rule was read to me, technically the lender could do it and it would pass the rule, but I think most lenders are conservative and keep to 6 months.  

So, what does all this mean?  To the best of my knowledge, you need to find a lender who will carry the loan themselves, i.e. not resell the loan on the secondary market.  That's why the general recommendation is to talk to local, small banks, credit unions, etc. since they are the ones that MAY do a non-conforming loan.  A similar method is to use hard money loans.  Since Idon't use them, not quite sure of the mechanics, but they will refi you (since of course they want to sell you another loan) into a conventional loan when the hml expires in 3 to 6 months.

I know I don't have many answers, but I hope it clears up the situation so you can better search for a solution.  Good luck.

@Ryan Keenan

I think investors do multiple properties in a year is because they have more cash/assets.  This is investing, not a job.  So, you need money to make money.  So, you need a small pile of cash so that you have the effective "cash flow" to keep floating it across a few properties and you keep refi'ing as you go.  Honestly, this is what I consider truly "leveraging."  This is how one could turn say $500k into, I don't know, $3mil in assets (not necessarily equity).

That being said, this is too rich for my blood  :)  I hope this makes sense and helps.  Good luck.

Hey Justin, totally understand. Historically, we've had to deal with the same seasoning issues when building our rental portfolio (now at 762 single family rentals in Baltimore City), which are super frustrating. We also lend private money (fix & flip and long-term rental) and we spent COVID addressing the frustrating gap between credit unions and FNMA. We launched our 30-yr fixed rate rental loan product Thanksgiving 2020. Its DSCR based (no tax returns) and seasoning is 3 months. I 110% agree that a 6 month seasoning requirement is arbitrary and lacks common sense (if you're a real estate investor, which we are). Our 30-yr program is a game changer - we would have gotten to 762 properties SO much faster if we'd had this product available. Rate is 4.25%, 30-yr fixed rate, 30-yr term, LLC borrower. Bank rates, 30-45 day closing timeframe, no tax return or DTI calc BS. 680 min FICO. We closed 161 loans last month. It's a game changer. I'll take the Pepsi challenge against any non-FNMA loan in the country.

@Justin Munk 

Look into Delayed Financing as a strategy to refi under the seasoning requirement

@Justin Munk how you acquire a property does affect certain things and what types of loans you can qualify for also make a difference. But basically we shouldn't be working with any lenders that have seasoning...for the exact reasoning you described.  Sometimes finding good lenders can be hard - keep in mind that most lenders hate us - our loans are smaller, there's more risk to them, we are usually complicated, etc.  So it can be quite challenging to find good lenders but I always recommend talking with other real estate investors because they have likely done all the hard work of finding good ones.  I did write a post on how to find good lenders on Bigger Pockets that you can find HERE.  Let us know if you have any other questions.  Thanks!

Many hml do. Or have a seasoning requirement and are offer attractive private / hard money options. Yes higher than a bank but not frightful . Opportunity cost is sometimes better than sitting on the sidelines .

@Jack BeVier

Hi Jack, I've been struggling with this issue myself. Do you lend 75% based on the new ARV with 3 months seasoning only? NOT loan to cost? And this is 4.5% range 30 fixed needing 650 credit score min?

@Ryan Keenan Yes sir. FICO min is 680. Call our office, speak with a loan officer and they'll be able to get you a firm quote on your specific property within 24 hours. Its a pretty simple product. We tried to keep the bells & whistles to an absolute minimum.