The banks "seasoning" period

7 Replies

Good morning BP,

I was reading this article Felipe Mejia posted about BRRRR for beginners, and it said this about the seasoning period.

Is this typically true? I've never done a BRRRR, but from what I understood, if I used a HML or private lender, I could refinance out immediately when the bank takes over. Can someone clarify? If it is necessary for the property to be rented for 6-12 months before refinancing, what are some ways around that. Let's say I did a 3-4 month rehab. How can I refi as soon as the rehab is complete?

@Noah McPherson Within 6 months, you Can refinance but it will be Only for the amount of any existing loans you have on the property. You have to wait 6 months to do a Cash Out refi where you borrow more than you already did. 

This is correct. Usually you have to be on title a full 6 months before refinancing for the full ARV. Some programs will allow you to refinance based off purchase price + documented repairs but the sure fire way to get the maximum amount of cash out is to wait the full 6 months.

@Noah McPherson oh man, no, No, NO!  We do NOT work with lenders with any seasoning requirement - ever.  I mean, I guess you can work with whomever you want but if a lender is telling you that you have to wait 6 months to a year to get value - THEN GO TO ANOTHER LENDER. There are plenty of lenders that do not require you to be on title for any amount of time and will give you full After Repair Value (ARV).

Now I will say that sometimes the way the deal is STRUCTURED will come in to play (like if you purchase the property entirely in cash or if you have multiple partners) but even in those scenarios you don't have to wait.  But you should most certainly be interviewing lenders before you pull the trigger on a property to get the proper information on how they lend money.  I wrote an entire post on this topic that you can read HERE.  Let me know if you have any other questions on it.  Here to help.

Seasoning period can also be required to make sure the property appraises. Lenders often have no control over appraisal, which is intentional to protect the bank or to meet underwriting requirements. The problem with refinancing within 6 months is that the "subject home" is a comparable recent sale. The only increase that the appraiser may be willing to offer is the value of improvements. They may even ask for receipts or proof of value of improvements. 

It also depends on the type of loan product you are seeking. If you are looking to do a conventional refinance (no cash out) then there is no seasoning. Conventional with cash out requires 6 months. These rules are based on Fannie Mae underwriting standards, so any lender offering these loans must comply. There are a couple exceptions in the Fannie Mae underwriting guide, but 6 generally speaking you must own the property six months:

https://selling-guide.fanniema...

If the lender is holding the loan in house or you work with private or hard money lenders, they will all make their own rules. Just be aware that closing costs, interest rate or term may be worse in some circumstances. Often a more flexible lender is building risk into their fees (understandably so).