How To: Avoid Seasoning when Refinancing

[Andrew Postell]

I’m going to let the cat out of the bag early here – you do not have to face seasoning when refinancing. You do not have to wait any period of time to refinance a property. There are plenty of lenders that have ZERO seasoning. Now that we have that out of the way let’s get into the details on how to do this.

Seasoning has reared it’s ugly head more prominently than ever recently. Economic changes do this occasionally. Lenders that could do “X” can no longer do “X” when the economy goes a bit crazy and this has certainly been evident since 2020. So this post will provide the answer to seasoning. And yes, you can 100% avoid seasoning ENTIRELY. Well, let’s say 99.9% of the time. And we’ll go through several scenarios showing how to do so.

What is seasoning?

Seasoning – First, let’s define “seasoning” for our discussion. Seasoning just means time. And "seasoning" can apply to a lot of different things. Seasoning on assets in the bank for example. Or time that you need on a job. FHA loans need the previous owner to be on title for 90 days…that’s a form of seasoning too. But for our purposes here will we discuss seasoning to mean “TIME ON TITLE”….or in other words, how long do you need to be on title to REFINANCE. And the answer is no time at all. You should be able to refinance with 1 day on title (and even less). And having NO seasoning is REALLY important to us if we are using the BRRRR method.

This post will focus on this type of seasoning on residential (1-4 unit) properties with a main focus for investors who are “buy and hold” types investors.

If you are using the BRRRR method on a property, the 3rd "R" is REFINANCE. If I have to wait to REFINANCE that might mean I am waiting to get my money back out of a property. Or it might mean I have to pay a Hard Money Lender (HML) more of a really high interest rate because I have to wait to refinance. Waiting means I am losing money. I hate waiting and I hate losing money. Not waiting means I can go to the next deal faster or maybe not have to pay someone else more of my profits. Either way, refinancing immediately is critical to my success as a "buy and hold" investor.

Here’s the 3 different sections we will cover in this post:

1. Seasoning vs. Different Loan Types
2. How to identify which banks have NO seasoning requirements
3. How to avoid all seasoning entirely

Let’s begin.

Seasoning vs. Different Loan Types

One of the predominate questions I hear is “this bank said seasoning is this long” or “that bank said seasoning is that long” – why am I getting different information?

One of the answers to this question is that sometimes lenders offer entirely different loan types. So I want to group loans that we get as investors into 2 main loan types – “Conventional” & “Portfolio”.

1. Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. You personally sign for these loans. It’s based on your personal income and your personal credit. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.

1. Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. Sometimes called “non-QM loans”. Even “hard money” is a form of portfolio lending. Whatever they are called, they come from the lender’s own funds. These loans are a lot more flexible than "conventional" loans. Lender's money = Lender's rules. NOT Fannie/Freddie rules. If they like you, then maybe they will lend to you. Maybe they don’t care about your income, but rather the income that the property will generate. These loans are easier to get but the terms are usually different than conventional loans. And since there are over 8,000 lenders in the US that means there are over 8,000 different portfolio loans.

The reason why this is important to understand that there are 2 main loan types is because not every bank will offer both types and some will address seasoning differently.

For example, conventional loans will group and underwrite loans in 3 different ways: Purchase, “No Cash Out” Refinancing, and “Cash Out” Refinancing. Because that’s how Fannie/Freddie guidelines state to underwrite loans. Remember, it’s not really up to the lender here….well, it can be…but more on that in a moment.

But portfolio loans, they might underwrite all loans the exact same way. I’ve had “portfolio” style loans on properties where the loan stated “cash out loan”. And when I brought it up to the lender their response was “all loans are cash out loans to us”. So to them, it didn’t matter. If you go the portfolio route, we just need to find a good lender that has no seasoning. And we’ll address how to do that in section 2.

Let’s jump back to the conventional separation for a moment. Cash out vs. No Cash out refinance.

Fannie Mae and Freddie Mac both state that if you are doing a NO CASH OUT loan that there is absolutely no seasoning requirement. Yes, absolutely no seasoning. You can refinance the same day with Fannie/Freddie. But some of you have run into a wall with this scenario before – where a bank stated you HAD to be on title for X amount of time even with a NO CASH OUT loan. Why was that?

And this is where it might get confusing – it’s because of OVERLAYS. You see, investment properties foreclose at a higher rate than primary homes. And lenders know this. And so do shareholders. If I’m a bank that is publicly traded….maybe I want to limit my risk to investment properties. Otherwise I might get over exposed to this risk, making my share price might go down. The board of directors gets together and comes up with rules that go OVER the Fannie/Freddie rules to help the lender mitigate this type of risk. Overlays are rules that the lender puts OVER the Fannie/Freddie guidelines. Fannie/Freddie say this is ok. You can be MORE conservative than their rules – but not LESS conservative. So it’s not a personal decision against you – it’s business. And this is why we preach about using smaller, more local lenders. Larger, national, publicly traded banks are out. We just can’t use them. Because they have too many OVERLAYS. And what’s even more frustrating about this, the loan officer you are speaking with may not even know that his/her employer has overlays! They actually train their employees to say “this is the guidelines”…but it’s not. Trust me, I know first hand this is how some lenders train their employees. The front line loan officer may have no idea about this subject. It took me a while to understand this so I’m peeling back the curtain some but you can find lenders with no overlays (more on that in a moment).

Whichever loan type you need to use, you can absolutely find a lender that has no seasoning.

I’ll address the “Cash Out” refinance with conventional money in the 3rd section but let’s get to the next part – how to find a good lender.

How to identify which banks have NO seasoning requirements

I did write a post on this topic extensively that you can find HERE if you would like to read this in more detail but we can sum up it up below. I’ve created a list of 9 questions I want you to ask your potential lenders when you are interviewing them:

Questions for Lenders

1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
2. When do you start using “After Repair Value” on my property? (this should also be immediately)
3. How long do you need me to be on title to refinance? (this is the “seasoning” question- and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance. Less is even better.)
4. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
5. How many loans can I have with you?
6. Can I change title to my LLC?
7. Do you sell your mortgages?
8. What is your loan minimum?
9. Can you explain to me what your reserve requirements are?

So even though just one question here is about seasoning these questions help us know if the lender has any OTHER overlays that might hinder us when using the BRRRR method.

These questions were written mainly for the Fannie Mae and Freddie Mac loans but you can certainly use these for the portfolio style loans as well.

And just because we know what questions to ask, where should we begin? It’s always better to start with recommendations from other investors.

Here's my 3 suggestions on how to find investor friendly lenders:

1. Post in the Bigger Pockets STATE forum that you are looking in. There are usually some good, local investors that monitor those forums. Maybe they already have a suggestion or recommendation for you? Certainly try there.
2. Visit your local REI groups. There are many groups that meet across the country. Some post here on the Bigger Pockets Marketplace. Many post on meetup.com. Networking is always a great practice and you never know who you might meet there and what good information they have to share. Would certainly recommend visiting if one is close to you.
3. Calling - and then there's this option. But with so many other investors who have recommendations this one is a last resort.

And now for the final section…

Seasoning Scenarios

So far we have covered:

1. How to select a lender with no seasoning no matter what loan type
2. That Fannie/Freddie have no seasoning on “no cash out” refinances
3. How “overlays” could affect us

So we have one last loan type to consider and it’s the most confusing, but also the most important for many investors

• The “conventional” Cash Out Refinance

Two really important items to know if you are receiving a “Cash Out” loan from Fannie Mae or Freddie Mac.

1. Fannie/Freddie do state that you have to wait 6 months to receive a cash out loan. That is a hard rule. You might be thinking “hey, you said I can avoid all seasoning”….and yes, you can. I’ll get to it, I promise.
2. The maximum LTV with a Fannie/Freddie cash out loan is 75% LTV on a Single Family Home (SFH). (70% on a 2-4 unit).

So let’s hit some common scenarios and how to avoid seasoning in them.

Scenario 1 – USED HARD MONEY up to 75% LTV

Most Hard Money Lenders (HML) will lend 75% of the ARV on a SFH. So why not borrow the most you can? Makes sense to me. So in this scenario you can do a NO CASH OUT loan right away – no waiting. No seasoning. BUT to do a cash out loan….well, you are already at 75% LTV with your HML. Cash out loan limit with Fannie/Freddie is 75%. You cannot go any higher and get cash out. The concept I want you to understand here is that if you borrow 75% of the ARV with a HML you can refinance right away and your expectation should be that you won't get getting a cash out loan. Seasoning is a non-factor in this scenario. Or it should be if you are using the right lender to REFINANCE.

Scenario #2 – USED HML BUT DID NOT GO UP to 75% LTV (maybe you rehabbed the property out of your own pocket)

If you are needing Conventional financing on your REFINANCE step you will hit a seasoning issue….but this is entirely avoidable if structured properly. Keep in mind, you cannot write a cash out loans before 6 months with Fannie/Freddie when you received a loan to purchase the property. So if your HML will lend you 75%, then there is EVERY reason to use all the money they can provide you. That way you aren't facing a seasoning issue. I see this one far too often. I see it in one way where the person did not get prequalified from a conventional lender and did not know what they would be facing once the rehab was done. Lesson learned, and just get the next one right. And I see it the other way where their HML would not lend them any higher amount, meaning they might only lend 65% of the ARV – that's a big reason to find a different hard money lender. Having the right partners when using the BRRRR method are critical to our success. Not only having the right REFINANCE lender but also the right BUY lender too. Got to have good partners in all steps. If you are using HML or Private Financing to purchase the property – borrow 75% or more to avoid any seasoning. The few bucks you save by renovating with you own money aren't worth the headaches you will face doing it on your own. Just borrow the full 75% and you will have ZERO seasoning.

Scenario #3 – I PURCHASE THE PROPERTY ENTIRE IN CASH

This was fully answered in detail with my post from 3+ years ago that you can find HERE.

We’ve been using this technique for years. No seasoning, no waiting. Just structure it right.

*WHEW* This was a lot of information but I certainly hoped it helps in some way to show how to avoid seasoning. Feel free to ask any questions if you need. 

Thanks!