When do seasoning rules usually apply?

[Taft Love]

I hear about financing out of mortgages and loans often. However, what I don't know is when seasoning requirements generally apply. While I realize that non-conforming loans can choose their own restrictions here, let's talk about what's most common.

Under what circumstances do the seasoning rules apply? It seems clear that we have to carry conventional and FHA loans for six months prior to refinancing. What about cash deals, private lenders, or hard money?

I guess the fundamental question here is: do the seasoning requirements apply based on the deed, regardless of how the deal was funded, or is it based on the instrument?

[Mike H.]

If I were to put together a list of questions for a bank, here are the two key things I would want to find out on my initial call:
1) Who can I speak to at the bank regarding residential/conventional mortgages?
2) Does the bank do commercial/portfolio loans on single family homes as investment properties? If yes, then who can I speak to regarding those loans?

Thats the first thing you need to flesh out. Almost all local banks are going to do residential/conventional mortgages. But not all banks will do commercial loans on sfh investment properties. But I don't think I've ever seen where one person will be able to answer questions on both their residential and commercial loan products. So you won't be able to ask questions on both to one person. You need to get to the appropriate group.

Once you get the two contacts, then you can ask your series of questions. Again, I would probably be more specific in the questions. Asking them what strategies they work with will likely get you either some meaningless sales pitch or simply dead air. :-) 
And asking them for what overlays they have will get you the same thing.

The people doing the loans won't typically know what guideline is a bank overlay and which one is fannie mae. They just know the overall guidelines. So you'll want to be specific on where you think they may have their own overlays. Here are what I would recommend to try to capture what you need and find out any overlays (there aren't many overlays to be honest).

For the residential contact:
1) Do you do investment property loans?

2) What are your seasoning requirements, if any, before I can get 75% of the appraised value as opposed to 75% of the purchase price? 3 mos? 6 mos? 12 mos?

3) What is your max LTV on investment properties for purchases? For refi's?

4) What is your min loan amount on investment properties?

5) How many properties can an investor have with mortgages in their name and still do cash out refi?

Note - Fannie mae allows 4? Freddie mac 6 for cash out refi I think? So not every bank does fannie AND freddie or they may have their own overlay.

6) How many properties can an investor have with mortgages and do rate/term refi?

Note - Again, fannie mae allows up to 10 but not many local lenders will go up to 10.

7) If I've owned a rental property for less than 2 years, how do you account for the rental income when calculating DTI ratio? 75% of rent?

For the commercial contact:

1) Do you do commercial/portfolio loans on single family home investment properties (i.e. rentals)?

2) What are your seasoning requirements, if any, before I can get 75% of the appraised value as opposed to 75% of the purchase price? 3 mos? 6 mos? 12 mos?

3) What is your max LTV on investment property loans?

4) What is your min loan amount on investment properties?

5) Does the bank have a loan limit they will do these loans for one person (i.e. 4 investment property loans max?) or a total dollar limit (say 1 million total)?

6) What are the typical terms for a commercial loan on SFH investment properties?
a) What is Amortization period: 20, 25, 30?
b) Does the loan balloon after 5 or 7 years or is it an ARM that the rate simply resets after 5 or 7 years?
c) What is the typical interest rate right now on these loans?
Note - I don't ask this question on the residential side because I know if its a conventional mortgage, its going to be a good rate and its going to amortize over 30 so the terms are already great.  For commercial, banks' rates can vary widely. I'm seeing anything right now from 4.5% to 6%.

[Andrew Postell]

@Taft Love the term "Seasoning" has been used many different times in many different situations.  I'll try to do my best to clarify what seasoning really is and what restrictions you MIGHT face that aren't "seasoning".

First, seasoning is how long you need to be on the deed before you have another transaction on the same property. Some banks have seasoning restrictions of 6 months or 12 months.  So if you purchased a home, then wanted to refinance, you would need to wait the bank's "seasoning" term in order to do it.  BUT, THERE IS NO SEASONING REQUIREMENT FOR CONVENTIONAL LOANS.  If the bank has a seasoning requirement that is what we call an "overlay" in the banking world.  Meaning, an extra rule that a bank places over the Fannie/Freddie guideline.  Overlays can very different from bank to bank and "seasoning" is one of the overlays that you might see.  So if you come across a bank that has one...then keep shopping!  This is one of the reasons why investors preach using small or mid-sized lenders and not larger lenders.  The larger the lender, the more overlays they have. You can absolutely 100% refinance on day 1 of owning a property with a conventional loan.  So, if you bought a home with hard money, need to refinance, you can start the day after you close on the home.

Second, sometimes seasoning gets lumped into the "Cash Out" rule that Fannie/Freddie loans have.  Fannie Mae and Freddie Mac do not allow cash out loans within the first 6 months of owning a property.  That is, unless you purchased the property with cash.  I wrote a pretty lengthy article on the subject HERE. The other item that sometimes comes into play is if you are flipping a property. If you are selling a property to someone using an FHA loan the FHA buyer will need you to be on title for 91 days.

Feel free to ask more questions if you need.  Thanks!

[Taft Love]

@Andrew Postell This is immensely helpful. It's good to know that seasoning refers to the deed and not a specific loan.

This info has helped me put together a list of questions to start asking banks. Here's what I've got so far. I'd love to hear anything you think I should add.

- Do you work with investors? If so, what strategies do you usually work with?

- What is your maximum LTV for mortgages and refinances?

- What is your minimum loan for mortgages and refinances?

- Do you have any overlays that apply to LTV or seasoning?

- Are there any other overlays that might be important for me to know as an investor?

- What seasoning requirements do you have for non-conforming loans?

- How do you decide whether to write non-conforming loans to investors?

I'm sure there are plenty of important things I'm not thinking about. If you (or anyone) has ideas for what to ask lenders, I'd appreciate. I'm sure others would get a lot out of that, too.

[Andrew Postell]

@Taft Love great questions!  Don't be surprised if it is hard to find someone who is good at investment lending.   Lots will say that they do it but I think you will be able to gauge their responses based on what you wrote above.  Good luck!

[Taft Love]

Awesome. Thanks for the info!

[Brian Garrett]

Great info provided by @Andrew Postell

[Mike H.]

If I were to put together a list of questions for a bank, here are the two key things I would want to find out on my initial call:
1) Who can I speak to at the bank regarding residential/conventional mortgages?
2) Does the bank do commercial/portfolio loans on single family homes as investment properties? If yes, then who can I speak to regarding those loans?

Thats the first thing you need to flesh out. Almost all local banks are going to do residential/conventional mortgages. But not all banks will do commercial loans on sfh investment properties. But I don't think I've ever seen where one person will be able to answer questions on both their residential and commercial loan products. So you won't be able to ask questions on both to one person. You need to get to the appropriate group.

Once you get the two contacts, then you can ask your series of questions. Again, I would probably be more specific in the questions. Asking them what strategies they work with will likely get you either some meaningless sales pitch or simply dead air. :-) 
And asking them for what overlays they have will get you the same thing.

The people doing the loans won't typically know what guideline is a bank overlay and which one is fannie mae. They just know the overall guidelines. So you'll want to be specific on where you think they may have their own overlays. Here are what I would recommend to try to capture what you need and find out any overlays (there aren't many overlays to be honest).

For the residential contact:
1) Do you do investment property loans?

2) What are your seasoning requirements, if any, before I can get 75% of the appraised value as opposed to 75% of the purchase price? 3 mos? 6 mos? 12 mos?

3) What is your max LTV on investment properties for purchases? For refi's?

4) What is your min loan amount on investment properties?

5) How many properties can an investor have with mortgages in their name and still do cash out refi?

Note - Fannie mae allows 4? Freddie mac 6 for cash out refi I think? So not every bank does fannie AND freddie or they may have their own overlay.

6) How many properties can an investor have with mortgages and do rate/term refi?

Note - Again, fannie mae allows up to 10 but not many local lenders will go up to 10.

7) If I've owned a rental property for less than 2 years, how do you account for the rental income when calculating DTI ratio? 75% of rent?

For the commercial contact:

1) Do you do commercial/portfolio loans on single family home investment properties (i.e. rentals)?

2) What are your seasoning requirements, if any, before I can get 75% of the appraised value as opposed to 75% of the purchase price? 3 mos? 6 mos? 12 mos?

3) What is your max LTV on investment property loans?

4) What is your min loan amount on investment properties?

5) Does the bank have a loan limit they will do these loans for one person (i.e. 4 investment property loans max?) or a total dollar limit (say 1 million total)?

6) What are the typical terms for a commercial loan on SFH investment properties?
a) What is Amortization period: 20, 25, 30?
b) Does the loan balloon after 5 or 7 years or is it an ARM that the rate simply resets after 5 or 7 years?
c) What is the typical interest rate right now on these loans?
Note - I don't ask this question on the residential side because I know if its a conventional mortgage, its going to be a good rate and its going to amortize over 30 so the terms are already great.  For commercial, banks' rates can vary widely. I'm seeing anything right now from 4.5% to 6%.

[Cynthia Hairston]

Hi Mike, Taft and  Andrew,

Funny this topic hasn't come up more often because the cash out refi is an important part of the Brrrrr system and that part of it is imperative to the success of this program, simply because it is the regeneration of your next deals capitol. I have an appointment with a large and reputable Lending source or Bank with the President of one of their most successful branches in Austin, Tx and it will be in regards to just this! I loan hard money and need a refinance lender who can fulfill the exit strategy with a refinance loan that has little to no seasoning requirements to allow a 6-month term to be able to cash out on time. I'm hoping he has enough power and influence to make this happen but I am trying to prepare for that meeting as we speak!

Mike, do you mind if I copy and paste your answer and the questions you set out? I have to ask to feel good about this, but you asked everything on my mind and worded it perfectly. And, Andrew, you did a fantastic job in explaining what seasoning is, in that sense. There are all sorts of seasoning, for instance on your proof of funds to close. It generally has a 6  month or more seasoning requirement on deposit as well as provide sourcing of the funds with a paper trail. Some lenders of hard or private money do not require seasoning of funds, but obviously, if the amount is a very large deposit, even if we do not require it, I believe the bank that received it has an obligation to report that deposit to IRS. Anything over 10k, so we would expect a voluntary disclosure of the source, even if we don't require proof of that story. We still would like to know that it was not a loan that needs to be paid back and their story they are sticking to! But, yeah, seasoning was my number 1 topic for this meeting and I quite frankly might have forgotten to ask some of the points you addressed! Thank you, you did my homework for me in one sitting and now I have one duty completed. So can I have copywrites? hehe  I think this is very worthy of repeating! This is why I have been participating in BP"s forums. People like the ones here that are not afraid of sharing their wealth for the betterment of their fellow man! God said if you share the wealth instead of hoard it, he will give you more of the same and the desires of your heart. I believe that, and wish all of yall a very prosperous new year!