Using private money without 2 month seasoning of funds?

Question

A private lender and I are going 50/50 on a down payment, I have cash & my private money partner is using HELOC funds and I am wondering how we can legally go about using our cash ASAP without a 2 month seasoning of funds. We would eventually start an LLC before we close on a property. I know through traditional loans the banks like to see a seasoning of funds for 2 months but I would like to be able to offer on properties as I am already pre approved just need help with the additional amount needed. What are my options here? I would hate to sit around to let the seasoning set, I am seeing deals that would make sense and they go to pending because I don't have the entire amount. I know I can have a contingency for financing depending how motivated the seller is but I would like to know what I can do in this situation. I ordered the raising private capitol book bigger pockets just released but wanted to ask the BP community

Ned Carey · Answer

@Emanuel Vega The period which you can "Shop around" has nothing to do with the lenders. It is the credit reporting agencies that can lower your credit score by applying too  many times. I believe the window is more like 10 to 30 days not 3 months.

There are credit forums online that may give a more specific response. I doubt credit pus for a mortgage affect your score more than a couple of points. If you were continually pulling for personal credit like credit cards that would be a different situation.

Did you ask them specifically what they mean by seasoning?  Generally seasoning is to make sure the money is really yours. Lenders want you as an owner to have "Skin in the game". In other words some of your own money at risk.  They figure if the money has been in your hands for two months, then it must really be yours.

Does pulling from a HELOC require seasoning? Where is your part of the money now? Is your partner doing to be a lender or owner. If he or she is going to be a lender then a bigger issue may not be seasoning but the fact there is a second lender on the property. That presumes your partner wants to record a Mortgage or deed of trust.

Keep in mind if you are going to purchase the property in an LLC there will be different rules. The loan you are "Pre-approved for may not work. An LLC requires a commercial loan.

If you shop around, with good financials, you should be able to get some ideas who can lend without having a hard credit pull.

Ned Carey · Answer

@Emanuel Vega There is nothing you need to do to invest without seasoning legally. There is no legal requirement for seasoning. That is a requirement of the lender. (Yes some Government sponsored entities may require it, but there is no general law requiring it.)

You just  need to look around for bank that don't require seasoning or define it in a way that you meet the requirement.  Generally you are going to have better luck with local and smaller community banks vs big national banks)

In your situation I don't even see where seasoning is an issue at all.

Emanuel Vega · Answer

@Emily Refi checking back in with the post, I've gotten in contact with local lenders and they are all telling me the same things which leads me to believe finding the right lender with good financials as @Ned Carey mentioned will be most important. My main concern is to protect the assets of my private lender, I need to look further into this due to them possibly having to be on the loan and would like to avoid that due to them possibly being caught in a litigation dispute down the road. Trying to move forward with the best legal protection without the seasoning period. Being new to investing I don't have the best financials but I would like to start with a strong foundation, will be looking for a solution to this and update the post then

Emily Refi · Answer

@Emanuel Vega I am going through a similar situation on a deal in Oregon. I have HELOC money for most of the down payment, and I am working on the other 50k through private money as a down payment on a conventional mortgage where 25% down is required. As I understand it though HELOC funds do not require seasoning so long as the provider of HELOC money is on the mortgage. Most other sources of private money do require that 2 month seasoning period, unless you have a partner with already seasoned money that is on the loan. I'm following this thread because if there is a way to avoid this seasoning period I'd love to hear about it!

Per @Ned Carey I'll check with other community banks to see if I get a different answer...

Ned Carey · Answer

@Emanuel Vega you seem to understand the basics about the LLC so I will leave it to an attorney to talk about how to structure things. NOLO Press has good  information on their website and excellent books on setting up and running LLCs

Emanuel Vega · Answer

@Ned Carey I see, Initially I went with my local credit union for the pre approval and found out they had a minimum loan amount where the closing costs could not exceed either 5-7% of the loan value but the person I was in contact with mentioned the pre approval was good for 3 months which now I see that can differ from a hard credit inquiry through another lender I searched for with no minimum.

What they meant by seasoning was having the funds sit for 2 months in my account, my partner is going to be a owner as well. But I did not ask if HELOCs would require seasoning, I have cash in my account that I got from selling a car and pulling from stocks at least the stocks withdraw has a history.

My partner is worried about protection of his assets so we are looking to just have myself on the loan and us workout payments and dividing cash flow, we will eventually transfer the title to an LLC with both our names being split 50/50 in the company. I understand having adequate insurance is crucial to having protection from lawsuits and have been looking up the best way to go about this, what do you recommend in this situation? The due on sale clause can be triggered when transferring the title but we just want to go about it the best way to be protected going forward

Using private money without 2 month seasoning of funds?

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