What does seasoning mean for me?

Question

I am contemplating trying to pick up one or two REO properties for rehab (assuming I can get them at prices that make sense). However, I'm worried / confused about the seasoning requirements. I would likely be financing at least one of the purchases - likely through conventional or maybe through a hard money lender (never tried that before).

The issue is the seasoning. I keep reading about 90 day FHA requirements and 12 months cash out requirements. What do these mean for me?

90 days doesn't seem like a big deal to me (these are side projects and I'd likely take that long to finish them), but 12 months is a long time. Would I not be able to buy cheap, rehab and sell at a higher price for 12 months????

Does the situation change if I pay cash for a property?

Ben Carmona · Answer

I said "some" conventiona lenders but I should have just said tha I have never in the last 14 years run into a conventional lender that had a seller seasoning restriction.

Douglas Christian · Answer

If you are able to pay cash and buy and fix the property that would be the way to go.  Then you could go and get a equity line of credit or refi the property to pull out some of your cash.  CASH IS KING.  Remember the less hands that have to dip into your bag the more you will have in your bag.

Consider the Carolinas for your 1st or 2nd properties.

Account Closed · Answer

Discussion consolidated at this thread.

http://tinyurl.com/5u7vff

Account Closed · Answer

Scratch American Sterling Bank off the list.  It's about to implode.

http://tinyurl.com/6pvubw

Account Closed · Answer

Ben Carmona wrote:  Some conventional lenders have picked up on seller seasoning too.

I have found that 99.9% of conventional lenders have seasoning requirements, even though Fannie/Freddie specifically don't prohibit flipping--or at least I can find no prohibition in Fannie/Freddie guidelines.

The only lender I've ever heard of that doesn't require seasoning is American Sterling Bank.

It would be beneficial if folks who post that "some" lenders require seasoning would post the names of those that don't.

Steve L. · Answer

This is a big problem for us, as most of the rehabs we buy we want to resell before 90 days.  If you are on title for longer then 90 days it typically is not a problem for a rehab.

I had heard some banks did not enforce this rule.  But we have not had any success so far.

Ben Carmona · Answer

FHA wouldnt be used by you as an investor.  Your buyers might need FHA financing and this where the 90 days seasoning will come into affect.  You'll need to be on title 90 days before selling.  Some conventional lenders have picked up on seller seasoning too.

Cash out seasoning is 6 months if you plan to get a conventional mortgage.  You can own up to 4 financed properties.  So if you used your own funds to buy the property then you'd need to wait 6 months if you wanted to get that cash back.  If you used a private or hard money lender to acquire(that secures a 1st lien) then you could pay back that through a rate/term refi and there is no seasoning.  However, if you want any cash out beyond paying off the 1st lien then you'd have to wait.

The cash out restriction is only for conventional loans though.  There are commercial and portfolio loans that dont have seasoning requirements and dont have a restriction on how many properties you own.  These loans will not be 30yr fixed terms though, more like 20yr amort with a 3-5yr balloon.

Shane Milne · Answer

The 90 day FHA flipping requirement means that you can't buy a property where the previous seller has purchased it within 90 days; the exceptions are in the case of bank owned properties & RELO companies.  This means you can't buy a home, fix it and sell it within 90 days to someone with FHA financing or they'll use the lowest sales price in the past X amount of months (can't remember the exact amount of months off the top of my head) - which is probably what you bought it at.  If you sell within 3-6 months to someone using FHA then two appraisals need to be done.

The 12 month cash out requirement is when doing a cash out refinance and the appraisal is within 12 months of the purchase date, the value the lender will use is the lower of the appraised value or the purchase price + documented cost of improvements.

However if you are buying your homes as investment properties then you don't need to worry about FHA when financing since FHA is for owner occupied only... only when buyers approach you.