Is there a Seasoning Period of a Cash Purchase?

Question

Good Morning Everyone!

Sorry if this question has been answered hundreds of times, I did a quick search and found contradicting answers. Now looking for some experienced investor advice.

If I buy a house for all cash (no mortgage), is there going to be a seasoning period with banks to do a cash out refinance. OR can I start the cash out refinance right away?

Thank you!

Sean Julian · Answer

From what I’ve experienced the banks and mortgage companies are requiring a seasoning period. 6 months.

Whitney Hutten · Answer

@Christian Ferreira Yes, HML. Are you doing construction as well? From what you described it sounds like you are doing a rate and term loan (which can be immediately done and is for the purchase amount on the HUD + ~2%). Delayed Financing is similar to what I described, but not the same! What you want is to have the purchase and construction on the initial HUD... then you can roll right into a rate and term financing situation. And you can do this with delayed financing. @Alexander Felice has talks about delayed financing + the rehab on his pod episode 301.

Christian Ferreira · Answer

From my findings, it seem that the seasoning requirement is 6 months for a cash out refi based on LTV. Prior to 6 months you can do whats called delayed financing which will give you only 100% of the purchase price as long as the appraisal comes back with over 75% LTV. For example, if I pay 200k for purchase with cash, and then get it appraised and its worth 250k, they will give me the 200k as the maximum loan amount. The seasoning is not tied to the mortgage but to the title. Some banks that offer portfolio loans may not require the seasoning period. In my scenario this will work fine because I am only borrowing half of the purchase price from a private lender. I will fund the other half as well as rehab and just do a large cash-out refi or HELOC down the road. Initially I just wanted to ensure I was going to be able to pay back my private investor timely.

Salvatore Lentini · Answer

Depends on the lender. The lenders I work with range from 0-6 months seasoning requirements. Traditional lenders will often be 6 months and investor focused lenders (lenders that only do non-owner occupied loans) will do less.

Will Fraser · Answer

HI @Christian Ferreira, I'll add further contradiction to be helpful :) If you would be refinancing this onto a commercial loan (i.e. NOT one that will be sold on the secondary mortgage market to the big dogs like Fannie Mae, Freddie Mac, and all their cousins) then it will vary from bank to bank or lender to lender. I find that most of the banks I work with have no seasoning requirements when the original purchase was in cash. They do, however, tend to be a LOT more bearish on the valuation and LTV in this case.For the conventional mortgage refinance, I don't have a clue, but I'm looking forward to finding out :)

Andrew Postell · Answer

@Christian Ferreira I see you have some responses here but I wrote a post on this topic that you can read HERE. It explains all the rules and differences to your question and how to avoid any seasoning at all. Read that and let me know if you have any questions on it. Thanks!

Jason Potrzeba · Answer

If this is a residential property, what you are looking to do is called delayed financing. Here is some info from the Fannie Mae selling guide...What is required for a delayed financing exception? (fanniemae.com)The ones I've done in the past were on O/O SFR.

NA Bell · Answer

All of these answers are incorrect. He’s asking is if there seasoning requirements if it’s a cash purchase. Lenders are not required on a cash purchase. Lenders require a seasoning process in order comply with lending rules. There is no seasoning requirements. All you have to do is wire the funds to title. Seller they asked to verify funds.

NA Bell · Answer

All of these answers are incorrect. He’s asking is if there seasoning requirements if it’s a cash purchase. Lenders are not required on a cash purchase. Lenders require a seasoning process in order comply with lending rules. There is no seasoning requirements. All you have to do is wire the funds to title. Seller may ask to verify funds.

Kyle Altenau · Answer

I think the one distinction a lot of people aren't mentioning is that you can cash out immediately after closing. It's just the lender's basis for that loan amount that will change depending on seasoning.If you are buying a discounted property and adding some value through rehab and want to cash out after 1 month of ownership, a bank is going to base their underwriting on your cost. Most banks use 6 months of seasoning, so after 6 months their underwriting would be based more in the appraised value of the property.