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!

[Account Closed]

@Andrew Postell whoa.. this is a really solid post! Great job!

[Ryan Burke]

What an excellent post. Thank you very much. I have a question and maybe I just need to understand more:

Scenario #2 – "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."

Why is there a seasoning issue if the HML lends you 65% as opposed to 75%?

[Andrew Postell]

@Account Closed thanks so much!

[Andrew Postell]

@Ryan Burke yes, so if you did NOT take the full 75%, and just got 65%.....and you wanted your "conventional" lender to go to 75% to give  you the cash you came out of pocket...then you would need to wait 6 months from purchase to do that.  A portfolio loan may not have that requirement but a conventional, Fannie/Freddie loan will.  So rather than take a smaller amount and come out of pocket for the additional money, just take the 75% from the Hard Money Lender and you won't have to wait.  Hope that makes sense.

[Eddy Baik]

@Andrew Postell I'm rereading this and forgive my noob-ness here. But trying to process in the The “conventional” Cash Out Refinance section this:

"Most Hard Money Lenders (HML) will lend 75% of the ARV on a SFH" - in BRRRR, I think of HML for original distressed property purchase (and possibly covering rehab costs too) in which case the HML is lending 75% of the purchase price (not ARV) on a SFH. I feel like I'm missing something here?

[Andrew Postell]

@Eddy Baik well, I cannot speak for EVERY lender here obviously but if a HML is only lending 75% of the purchase price then go to a different lender. There are plenty of lenders that will lend 75% of the ARV. Must have the ARV part of the equation.

[Bob Reinhard]

is the lend ONLY 75% of the purchase price (so that you have have to gave 25% skin in the game?) and then there is a part 2 for the overall %age lend?
The two posts appear slightly disjointed.

Bob

[Andrew Postell]

@Eddy Baik one point of clarification here - if a lender says something like "well, this is your first deal...so we're only going to lend 70% of the ARV" - that's ok with me - AS LONG AS THEY OFFER 75% ONCE THEY ESTABLISH A RELATIONSHIP WITH YOU.  So if someone says "we lend 80% of the purchase price + 100% of repair, not to exceed blah, blah, blah...." - that's not 75% of the ARV.  Lots of differences between lenders out there. If you play in the "Jumbo" world ($750,000+ value) things might be a little different up there too.  No hard rules to this but I will always recommend consulting fellow real estate investors in your area about who the best lenders are.

Hope all of that makes sense.

[Mike Klarman]

Loans are capped at 75% ARV, you can't get more than that but you can get less. You'll get 80% of the purchase plus rehab, 85% if you have 5 deals under your belt. But the loan with the purchase and rehab money can't exceed 75% of the ARV.

[Katherine Blazer]

I work with a fund that will do 75% LTV after 3 months for a cash-out. If you record a mortgage, you can do a rate and term up to 80% LTV.

[Eddy Baik]

@Andrew Postell Interesting thanks for the response. I could have sworn that hard money lenders are stating LTVs with respect to purchase price and then separately mention whether they allow for covering X% to 100% of rehab costs too. Even the BRRRR deal analysis calculator I'm using is doing this. I'll call these lenders and confirm again. Two I've talked to are (https://www.limaone.com/hard-m...) and (https://brrrr.com/loan-program...). I guess I also wonder how the HML would lend against ARV when all you have is a distressed property with current negotiated purchase price and an appraisal to confirm ARV won't be available until after rehab is completed and you attempt to refinance right? Or when you say ARV do you mean ARV = purchase price + rehab costs because I was assuming ARV = purchase price + rehab costs + forced value added appreciation

On a sidenote: Your 3 seminal posts (How To: Cash out 1-4 unit Property, How To: Find Real Estate Investor Friendly Lenders, How To: Avoid Seasoning when Refinancing) are something I keep referring back to repeatedly. Would you ever want to consolidate and create a blog post to pull this amazing info out of forums to make more accessible (the Q&A posts and responses are valuable obviously too but...) and perhaps expand a bit to what you've already written? For example, 3 things that if you also added to your original post would make it more complete and then I think it would be the ultimate seminal piece for anyone to learn about lending

(1) Call out "delayed financing" term and connect it more explicitly to what you've written (as a n00b I didn't make this connection until much reading and research later after reading your posts)

(2) Perhaps add this additional item that people seem to do that makes delayed financing another option when purchasing with cash if you feel it's legit (seems so): https://www.biggerpockets.com/...

(3) Connect, expand and elaborate more on the portfolio loan side of things for a new RE investor with what you've already written - posts are focused mostly on conventional loans but for someone who is evaluating BRRRR in LLC from the start, such an expansion would be super helpful. It's a super confusing world out there and many DSCR lenders now seem to be giving terms on par to conventional loans (albeit interest rates of course are higher still)... I'm still learning and talking with lenders to firm up my understanding. For example, you could elaborate on the notions of recourse/non-recourse, personal guarantees, evaluate and summarize the range of DSCR lenders (those that seem to offer 30 yr fixed in particular), local vs national HML general things to know, and how financing works for purchasing from wholesalers. I also see posts where people are asking about borrowing in personal name from HML (which generally seems not the case due to legal compliance issues for HML) and how HML and DSCR loans make sense to do combined when purchasing in LLC (I see some folks asking about buying via HML and then refinancing with conventional loan - not even sure this is possible but if so, you'd have to transfer title to personal name too which I don't think makes sense to do?)

[Eddy Baik]

@Andrew Postell elaborating on why I was secretly hoping you might be willing to refactor and expand your posts into an ultimate blog post

One, I haven't yet seen a great one online

Two, friends who are also starting out in RE investing like me are asking me what I understand because they know I'm prone to analysis paralysis because I can't help but research a lot haha. And as I answer their questions, I realize I'm still firming up my understanding and have gaps. I thought I'd share below my recent chat message (pasted below in quotations) to a friend summarizing my understanding - not even sure I'm 100% correct. Would love if you have time to point out where I'm off. You can see my fundamental understanding is built upon your amazing posts!

Two sidenotes: 
- when I talk about ARV below it means purchase price + rehab + forced appreciation
- this person made a blog post about the same borrow from LLC idea as you noted when purchasing with cash https://www.biggerpockets.com/... but I think his note is a bit more explicit about how you can leverage it to incorporate the estimated ARV (including forced appreciation) for LTV... it's in your post too but for a n00b it's harder to see it without reading it several times, getting more educated and coming back to your post again before one sees it more clearly

"I'm no expert here - so the following is my current understanding and I could be wrong. For me to really understand (because I still have my own questions), I need to talk to a few more expert lenders and ask the right questions

It seems the seasoning is only required by Fannie/Freddie if doing cash out refinance with a conventional loan which is why it comes up as an issue for BRRRR.

So keep these 2 principles in mind to help you navigate through the complexity: conventional loan cash-out refinance and time on title seasoning (6 months time is the key principle, a lot of the articles etc online talk about 6 months of payments which causes confusion... I've confirmed it is a time seasoning not a 6 payments seasoning and this matters because then it doesn't matter whether you bought the property with a loan or cash https://selling-guide.fanniemae.com/Eligibility/Mortgage-Eligibility/Loan-Purpose-/COR/109[…]ng-requirement-for-a-cash-out-refinance-transaction.htm)

For a cash-out refinance, Fannie/Freddie apparently requires 6 months time on title before refinancing. Keep in mind the main reason why you'd ever want to "cash-out" refinance - only if property appreciated in value (either due to economics supply/demand or you forced appreciation via rehab)

See this article: https://www.biggerpockets.com/forums/48/topics/460294-how-to-cash-out-1-4-unit-property



(1) If you use conventional loan originally, what's clear to me is that if you try to use conventional cash-out refinance loan later then you need to wait 6 months before refinancing. Alternatively, I believe you can use portfolio/DSCR loan to refinance (in your name or transferring title and then borrowing as LLC) with lender who has no seasoning required.

That all said, I think this scenario never comes up because if you originally buy with conventional loan then the RE investor is either doing a rent-ready buy and hold OR the property isn't that distressed enough so that a lender is willing to give a conventional loan but even if you add value with some light rehab, you don't force enough appreciation for a refinance to be worth it in < 6 months.

(2) If you buy a property in cash and later want to do cash out refinance, I think generally there are 3 paths

(A) there is this approach called delayed financing with no seasoning requirements - the main limitation is that the LTV is against the purchase price not the ARV but seems like people have found a way around this (see: https://www.biggerpockets.com/blog/work-with-lenders-brrrr-method). Then there's also the borrow from LLC approach in the first link above

(B) use portfolio/DSCR loan from lender with no seasoning requirements on time of name on title (not even sure if any portfolio lenders even have any seasoning requirements if property was purchased with cash)

(C) if you want a more straightforward conventional cash out refinance (straightforward in that ARV after rehab determines LTV and not original purchase price like delayed financing) then I think the 6 month seasoning is still required (not because you made 6 months of payments having originally used a loan to purchase but because conventional lenders still require 6 months time of name on title)

(3) Can use Hard Money Loan (hard money mostly requires LLC I'm told) and then refinance using DSCR loan as LLC all the way through the short-term and long-term financing

Disclaimer: the above is my current understanding, I could be wrong anywhere in the above"

[Andrew Postell]

@Eddy Baik thanks for the posts.  I do appreciate it.  Most of the time I have to keep my posts pretty brief because of the time restraints that I have.  Meaning, I am a real estate investor, I have a full time job (more than full time), and not to mention family, etc.  I do love helping (no one helped me when I got started so I feel like I owe it to help) but sometimes it's just easier to talk things out.  Feel free to call me if you ever have anything you want to work through.  It's a lot easier to speak on these subjects than write them out in their entirety.  Thanks!

[Dexter Rogers]

You wrote a book. Why not list some lenders?🤔

[Andrew Postell]

Bumping this post since this topic has been getting a lot of attention lately.