Cash purchase refi- does "seasoning" apply?

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Cash purchase refi- does "seasoning" apply?

Vanessa RyderPro Member
Investor · Los Angeles, CA · Member since 2015 · 63 posts · 10 votes
Ok heard a lot about seasoning if you want to refi from one initial purchase loan into another after rehab, but wondering about if I buy a property (SFR or Multi) with cash, and then fix it and increase the value, if I want to refi to get my cash back out, will I be subject to "seasoning"??!!! Thx for any advice..
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Shaun Weekes
Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
10y

@Vanessa Ryder @Mike Hanneman

You have 2 different options here.  Get cash based off the purchase right away ( Delayed Financing ) or wait 6 months to get cash based on the new appraised value.

Say you buy a home cash for 100K and after 2 months you want to do a cash out refinance. You can only get up to 70% of the purchase depending on what type of home it is ( SFR, 1-4 Unit )

Same scenario but now it's been 6 months and the home is worth 150K.  Now you can refinance up to 75% of the 150K.  

So to answer your questions it can be done both ways.  You just need to get with a loan officer or broker who knows what they're doing in advance.

Delayed financing by the way has a lot of additional guidelines.  You can google delayed financing through Fannie Mae and this will help you understand.  Or again use a loan officer or Broker that is with it.

I hope this helps both of you.

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  • Mike Hanneman
    Investor · Coeur d'Alene, ID · Member since 2016 · 551 posts · 218 votes
    10y

    I'm dealing with this as we speak and yes the lender I'm working with says I have to wait 6 months for seasoning. I think mine is title seasoning. This could vary with different lenders, maybe, but the two I talked to have title seasoning.

    1Reply
  • Shaun Weekes
    Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
    10y

    @Vanessa Ryder @Mike Hanneman

    You have 2 different options here.  Get cash based off the purchase right away ( Delayed Financing ) or wait 6 months to get cash based on the new appraised value.

    Say you buy a home cash for 100K and after 2 months you want to do a cash out refinance. You can only get up to 70% of the purchase depending on what type of home it is ( SFR, 1-4 Unit )

    Same scenario but now it's been 6 months and the home is worth 150K.  Now you can refinance up to 75% of the 150K.  

    So to answer your questions it can be done both ways.  You just need to get with a loan officer or broker who knows what they're doing in advance.

    Delayed financing by the way has a lot of additional guidelines.  You can google delayed financing through Fannie Mae and this will help you understand.  Or again use a loan officer or Broker that is with it.

    I hope this helps both of you.

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  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    10y

    @Shaun Weekes.  He is part of an outstanding lending institution.

    Good Luck!!

    1Reply
  • Brad Smith
    Lender · Perry Hall, MD · Member since 2015 · 100 posts · 44 votes
    10y

    @Vanessa Ryder

    Hi Vanessa,

    With FNMA/FHLMC your title must season for 12 months before you can capture your equity. Bank portfolio loans can be 6 months. Lastly, institutional Private or Hard Money often requires NO seasoning. In other words, you bought it yesterday for 100k and fixed it up. Today it's worth 200k. You can refinance up to 75% of new value to take out equity. Rates for good-excellent credit range from 6.5-8% for this type financing.

    1Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y

    @Vanessa Ryder, my understanding is slightly different to both @Shaun Weekes.

    Shaun wrote: ..."you buy a home cash for 100K and after 2 months you want to do a cash out refinance. You can only get up to 70% of the purchase"...

    Brad wrote: ..."you bought it yesterday for 100k and fixed it up. Today it's worth 200k. You can refinance up to 75% of new value to take out equity"...

    Whereas I believe that: if you bought it yesterday for 100k (cash) and fixed it up; today it's worth 200k. Therefore, you can apply for immediate finance up to FULL purchase price (only)!

    Here is a link to Fanny Mae's Selling Guide. Look at the "Delayed Financing Exception":- https://www.fanniemae.com/content/guide/selling/b2...

    A key sentence is this: ..."The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points"...

    If other Lenders have differing (better for investors) criteria, please let us know. Cheers...

    0Reply
  • Christian Sifuentes
    Flipper/Rehabber · Fair Lawn NJ · Member since 2016 · 382 posts · 87 votes
    10y
    Brad Smith so if i use HML there is no seasoning period to refinance and get cash at 70-75% ltv?
    0Reply
  • Mike Hanneman
    Investor · Coeur d'Alene, ID · Member since 2016 · 551 posts · 218 votes
    10y

    If you use an HML there is no seasoning, LTV could vary depending on lender, I've seen a couple offering up to 85%, but 70-80% is the norm. You will be paying much more in interest though.

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  • Brad Smith
    Lender · Perry Hall, MD · Member since 2015 · 100 posts · 44 votes
    10y

    @Christian Sifuentes

    Hi Christian,

    Yes you certainly can.  Whether you should is subjective. My clients that do have a valid need for the cash in the near term to further their RE interests. The higher rate (2-4% above bank) is factored into their cash-flow plans. Also, a main reason I didn't mention before, is that many cannot credit/income qualify for bank credit or have exhausted their FNMA/FHLMC allowance.

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  • Brad Smith
    Lender · Perry Hall, MD · Member since 2015 · 100 posts · 44 votes
    10y

    @Brent Coombs

    Hi Brent,

    Whereas I believe that: if you bought it yesterday for 100k (cash) and fixed it up; today it's worth 200k. Therefore, you can apply for immediate finance up to FULL purchase price (only)!

    You are quoting Allregs underwriting guidelines that will allow the closed loan to be successfully sold on the Secondary Market. Quite rightly, FNMA, FHLMC, FHA, VA and USDA all require title to be seasoned for 12 months before allowing you to re-appraise home in order to capitalize on higher value.

    What I was describing was non-bank, institutional Private Money. I'm not a big fan of the term "hard money", because of the negative connotation. Private Money is hedge fund driven and the only thing the lender cares about is Internal Rate of Return (IRR) for their Investors. So they might consider, say, an unseasoned, stated income, 630 credit, cashout, foreign national loan at 60-75%.

    If the loan goes belly up, they could still recoup their losses through foreclosure and not severely cripple their Investor returns. 

    This is a lot like some aspects of the Sub-prime market that went away in 2007.  Difference is, this time there are credit, equity and asset curbs in place that were lacking prior to the bubble.

    0Reply
  • Lathea Morris
    Lender · Montclair, NJ · Member since 2010 · 122 posts · 16 votes
    10y

    @Vanessa Ryder

    Hi Vanessa,

    Although many lenders require seasoning, some lenders who offer aggressive programs don't. It depends on the details associated with the property.

    0Reply
  • Shaun Weekes
    Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
    10y
    Originally posted by @Brent Coombs:

    @Vanessa Ryder, my understanding is slightly different to both @Shaun Weekes and @Brad Smith.

    Shaun wrote: ..."you buy a home cash for 100K and after 2 months you want to do a cash out refinance. You can only get up to 70% of the purchase"...

    Brad wrote: ..."you bought it yesterday for 100k and fixed it up. Today it's worth 200k. You can refinance up to 75% of new value to take out equity"...

    Whereas I believe that: if you bought it yesterday for 100k (cash) and fixed it up; today it's worth 200k. Therefore, you can apply for immediate finance up to FULL purchase price (only)!

    Here is a link to Fanny Mae's Selling Guide. Look at the "Delayed Financing Exception":- https://www.fanniemae.com/content/guide/selling/b2...

    A key sentence is this: ..."The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points"...

    If other Lenders have differing (better for investors) criteria, please let us know. Cheers...

     You just proved that I'm correct.  If less than 6 months you have to base the cash out on the purchase price or appraised value. Which ever is less. You cant base this off the new appraised value because under 6 months the uw will take the lower of the 2 values.  After 6 months you can take out cash based on new value.  Any lender that requires more season has OVERLAYS.

    What you quoted is as follows:

    Mr. Anderson buys property all cash for 100k.  After 2 months it's worth 200k.  At 75% he is looking at a loan amount of 150k.  The initial investment was 100k so 150k is out of the question because it's higher than 100k, his initial investment. Furthermore delayed financing also clearly states that that the loan will be based on appraisal or purchase price, which ever is less.

    The banks I do business with have no OVERLAYS so I quote FNMA/FHLMC guides.

    I hope this makes it clear.  If you have more questions please ask.

    2Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y

    @Shaun Weekes is correct in ^ that ^ post. 

    ARV is not a concept that actually exists in any mortgage guidelines, although something very close to it exists in renovation mortgage guidelines.

    I think that's the only loophole that hasn't been explicitly mentioned. If you're going to do all your work 100% above board with licensed contractors, permits, city approved plans, whole "official" 9 yards, you can buy it all cash today and start the 203k (if o/o) or FNMA HomeStyle (if SFR n/o/o) process 5 seconds later... rather than "freeing up" capital after the fact, you're financing repair costs from the get-go and the funds don't leave your pocket at all. Your loan balance may end up way higher than your purchase price, all those labor/material costs were rolled into the loan... which you can of course pay off asap with no prepayment penalty.

    A reliable renovation lender should have rates a little higher on reno products,  but still nowhere near hard money, to account for it being like 3x as much paperwork. Renovation lenders with rates similar to non-reno have severe reliability issues (that's not what you folks want to hear, but it's what you need to hear).

    2Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y

    @Chris Mason, what you just wrote looks to disagree with the same post of Shaun's that I disagreed with ie. Shaun wrote ..."Say you buy a home cash for 100K and after 2 months you want to do a cash out refinance. You can only get up to 70% of the purchase"...

    Whereas Chris, you wrote that by doing the same immediate "delayed financing": ..."Your loan balance may end up way higher than your purchase price, all those labor/material costs were rolled into the loan"... (ie. a loan which you didn't already have)!

    But, you then wrote that Shaun's rebuttal to my post was correct. What am I missing?...

    [BTW, I have proof from another thread that the full purchase price (less about $3k closing) was able to be "delay financed" by a Buyer conventionally within 2 weeks of paying all cash]. Cheers...

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    10y
    Vanessa Ryder Put it in simple terms from banks I have spoken with - 1. If it is a portfolio lender they may not require seasoning 2. If it's a lender such as a Wells Fargo you can have "delayed financing" based on what you paid for it or after six months can refinance based on appraised value
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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y
    Originally posted by @Brent Coombs:

    @Chris Mason, what you just wrote looks to disagree with the same post of Shaun's that I disagreed with ie. Shaun wrote ..."Say you buy a home cash for 100K and after 2 months you want to do a cash out refinance. You can only get up to 70% of the purchase"...

    Whereas Chris, you wrote that by doing the same immediate "delayed financing": ..."Your loan balance may end up way higher than your purchase price, all those labor/material costs were rolled into the loan"... (ie. a loan which you didn't already have)!

    But, you then wrote that Shaun's rebuttal to my post was correct. What am I missing?...

    [BTW, I have proof from another thread that the full purchase price (less about $3k closing) was able to be "delay financed" by a Buyer conventionally within 2 weeks of paying all cash]. Cheers...

    Cash out refinances, rate/term refinances, delayed financing, and renovation financing, are all different things. Note that the additional option I presented is 100% predicated on doing everything above board, permits, plans approved, lender scrutinizing and approving every little thing, bla bla bla. Most REI types want nothing to do with that in my experience.

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y

    @Chris Mason, so your answer to the OP's question is: No! ie. 70-75% of the Banks' appraisal value can be immediately loaned, so long as that total doesn't EXCEED the actual cash purchase price!

    Or, am I still missing something?...

    1Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y
    Originally posted by @Brent Coombs:

    @Chris Mason, so your answer to the OP's question is: No! ie. 70-75% of the Banks' appraisal value can be immediately loaned, so long as that total doesn't EXCEED the actual cash purchase price!

    Or, am I still missing something?...

     Renovation is the only way around this. Basically rather than putting "cash in" to fix it up, you finance it all from the get-go, using renovation financing. There's no need to cash out because you were never "cash in," your mortgage balance just kept getting bigger the more work you did.

    Renovation financing uses basically ARV appraisals to determine how much they are willing to lend, and they will lend way north of your purchase price if your ARV supports it. (ARV does not appear in guidelines, but that's what it amounts to.)

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y

    @Chris Mason, hmm, interesting. In the "other thread" I referred to, there were NO repairs required:-

    https://www.biggerpockets.com/forums/223/topics/30...

    I noted on that thread that I was surprised that a contemporary bank APPRAISAL trumped purchase price when it came to 70% cash-out being allowed. 

    (But still, NO MORE than purchase price was permitted). Thanks Chris...

    1Reply
  • Chris Viglietta
    Rental Property Investor · Los Angeles, CA · Member since 2015 · 74 posts · 10 votes
    10y

    Private Money Guy stepping in. Please note, I'm posting to be transparent and potentially offer the investors on this thread a great product as @Brent Coombs asked above

    I just responded to another fellow BP member about pre-payment penalties. Since the the OP is from LA, I'll list our CA product:

    - rates in the 8s and 9s
    - 75% LTV, 75% of rehab costs
    - $100k to 5mm
    - Prepayment penalty of 4 months (1 year) / 12 months (2 years) / 24 months (4 years)
    - Loans funded in 5-10 days

    Hope that shed some light on the private money side. Please let me know if I can be of any help to your future ventures. 

    0Reply
  • Shaun Weekes
    Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
    10y
    Originally posted by @Brent Coombs:

    @Chris Mason, hmm, interesting. In the "other thread" I referred to, there were NO repairs required:-

    https://www.biggerpockets.com/forums/223/topics/30...

    I noted on that thread that I was surprised that a contemporary bank APPRAISAL trumped purchase price when it came to 70% cash-out being allowed. 

    (But still, NO MORE than purchase price was permitted). Thanks Chris...

     I just re read the guideline on Delayed Financing and I noticed a sentence that stated current appraised value.  I just emailed my UW and a couple of AE's ( Account Executives ) that work for a bank I do business with.  

    It appears that the new appraised value does supersede the purchase price if all delayed financing criteria is meet.  

    When I get the answer direct from the source I will post again and include the entire guideline.

    1Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y
    Originally posted by @Shaun Weekes:

    @Chris Mason, hmm, interesting. In the "other thread" I referred to, there were NO repairs required:-

    https://www.biggerpockets.com/forums/223/topics/30...

    I noted on that thread that I was surprised that a contemporary bank APPRAISAL trumped purchase price when it came to 70% cash-out being allowed. 

    (But still, NO MORE than purchase price was permitted). Thanks Chris...

     I just re read the guideline on Delayed Financing and I noticed a sentence that stated current appraised value.  I just emailed my UW and a couple of AE's ( Account Executives ) that work for a bank I do business with.  

    .

     Oh. Holy smokes. I do see that. But there's a reason we aren't already doing this willy nilly left and right. I'm curious as to what that is.

    EDIT: My reading, hyper-focusing on what you are looking at, is that you could go to 100% LTV based on purchase price value, in theory. So if you buy it for $100k, fix it up, and it appraises for $500,000,000, you can borrow up to $100k + closing costs.

    2Reply
  • Shaun Weekes
    Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
    10y
    Originally posted by @Chris Mason:
    Originally posted by @Shaun Weekes:
    Originally posted by @Brent Coombs:

    @Chris Mason, hmm, interesting. In the "other thread" I referred to, there were NO repairs required:-

    https://www.biggerpockets.com/forums/223/topics/30...

    I noted on that thread that I was surprised that a contemporary bank APPRAISAL trumped purchase price when it came to 70% cash-out being allowed. 

    (But still, NO MORE than purchase price was permitted). Thanks Chris...

     I just re read the guideline on Delayed Financing and I noticed a sentence that stated current appraised value.  I just emailed my UW and a couple of AE's ( Account Executives ) that work for a bank I do business with.  

    .

     Oh. Holy smokes. I do see that. But there's a reason we aren't already doing this willy nilly left and right. I'm curious as to what that is.

    EDIT: My reading, hyper-focusing on what you are looking at, is that you could go to 100% LTV based on purchase price value, in theory. So if you buy it for $100k, fix it up, and it appraises for $500,000,000, you can borrow up to $100k + closing costs.

    Yes. I will get confirmation on my end but I think that you're right about 100 LTV which is really wild. You can offer cash on a home and as long as your offer is accepted and there's a tone of equity you can really cash in.

    In the Florida example that lady can technically go up to $100,500 after 6 months which means that she would own the home with 25% roughly 30k more.  

    This is a huge profit center for investors with cash!!!

    1Reply
  • Rebecca B.
    Investor · Des Moines, IA · Member since 2014 · 57 posts · 5 votes
    10y

    I'm really interested in this. I have a cash rental that I bought 2 months ago. You're saying I could get 100%  of my cash out now?

    0Reply
  • Brad Smith
    Lender · Perry Hall, MD · Member since 2015 · 100 posts · 44 votes
    10y

    @Rebecca B.

    With Deferred Financing Exception, you can cashout up to the purchase price or 70% LTV, whichever is less, right away. If you can wait the 6 months, you can C/O to the highest LTV that new appraised value and lender overlay will allow, probably 85%.

    1Reply
  • Rebecca B.
    Investor · Des Moines, IA · Member since 2014 · 57 posts · 5 votes
    10y

    Thanks for that. I can easily wait 6 months. That's just another 4 months. I paid 45k for the house and it should appraise at 75k after spending $10k on it. 

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