Investment Property Cash Out Refinance Seasoning

What Are The Seasoning Requirements To Refinance A Mortgage

The seasoning requirements to refinance a mortgage pertain to how long you have held your mortgage. The typical minimum time requirement to hold a mortgage before refinancing is one year, but there are many exceptions to this rule. Each mortgage program has their own requirements and each lender can have addition overlays for their own protection. This helps keep profits to a minimum that are not warranted.

No Seasoning Cash Out Refinancing On Investment Properties

SOME CONTENT OF THIS ARTICLE IS OUTDATED – LENDING GUIDELINES HAVE CHANGED 100% NO-SEASONED CASH OUT REFINANCING ON INVESTMENTS IS NOT CURRENTLY AVAILABLE

PLEASE DO NOT CALL ABOUT THIS PROGRAM! THIS ARTICLE WAS WRITTEN IN LATE 2006 – THIS IS LONG GONE!

There are several types of “seasoning” in real estate finance. There is “seasoning” of funds , there is seller “seasoning on title” of the property being sold and there is “title seasoning” on a property being refinanced. Seasoning simply means “the period of time which a property or asset has been under the direct control of a party”. In other words how long you’ve had it.

Many loans for purchase require that the seller seasoning be at least 6 months and the funds the purchaser will be using for closing have been in their possession for a minimum of 2 months.

Refinancing is a different story altogether. In a “refi” there is no requirement for seasoning of funds but there is almost always a requirement for seasoning of property or the length of time the borrower has been on the title to the property. Until recently almost all lenders have required the owner of an investment property to have been “on title” for a minimum of 6 months and in most cases 12 months to refi the property and take the full appraised value as the loan amount. This can be big.

Investor funding available in Georgia and Florida from .

How To Do A Cash

Here are the general steps to follow when refinancing a rental property to pull cash-out:

1. Gather lender-required documents

• Proof of income, such as pay stubs or bank statements if you are self-employed.
• Copies of W-2, 1099 forms, or recent tax returns to verify income and employment history.
• Evidence of homeowners insurance and rental property coverage.
• Copy of most recent title insurance received when you purchased the property.
• Additional asset and debt information, such as personal and business banks and savings accounts, retirement and brokerage accounts, and existing debt and monthly payments.

2. Apply for rental property cash-out refinancing

While lenders can set their own rules for refinancing a rental property, most follow the guidelines set by Fannie Mae and Freddie Mac.

However, some lenders may be willing to work with you on the interest rate and loan fees, depending on your relationship with the bank and the current performance of your rental property.

Thats why its a good idea to shop around for a rental property refinance loan by visiting the Stessa Mortgage Center.

3. Lock down the interest rate

Once the application for a cash-out refinance on your rental property has been approved, the lender will normally give you the option of locking down your interest rate.

4. Proceed with underwriting

5. Close on the rental property refinance loan

After the underwriting is complete and your refinance loan is fully approved, the final step is to close on your loan.

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Lenders With No Seasoning Requirements

Most lenders and mortgage programs have seasoning requirements that could make it difficult to refinance.

If you are trying to refinance or even purchase a home, there are lenders who have no seasoning requirements that do not require the usual waiting period.

Mortgage seasoning could be related to refinancing after a purchase, bankruptcy seasoning, and also down payment seasoning. We will discuss all of these below and which lenders may offer a solution.

Stash Away Emergency Cash

Financial experts typically recommend keeping three to six months worth of expenses in savings though you may want to save more if you own rental units. This can help you keep up with your mortgages, pay your bills, and otherwise maintain your lifestyle in case of financial emergencies.

Tapping your equity at a low rate, when you still qualify for the loan, could help you start this fund. Just be sure you can keep up with the higher payments from a cash-out refinance.

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How Much Will My Va Cash

Along with your loans interest rate which we discussed above, you can measure your new loans costs in:

VA loan closing costs

Your VA cash-out refinance closing costs are similar to those for a VA home purchase mortgage. Though, unlike with a home purchase, theres no seller to negotiate paying your closing costs.

The good news: Most borrowers can roll their closing costs, including the VA Funding Fee, into the new loan. You may not need a lot of out-of-pocket cash.

However, even with the most generous lender, your new loan amount and the closing costs combined cant exceed 100% of your homes market value. So financing closing costs into your loan amount reduces your amount of cash back.

VA funding fee

The one-time funding fee for a VA cash-out refinance is between 2.3% and 3.6% of your loan amount. Exactly how much will depend on whether youve used a VA loan in the past.

This fee helps insure your loan, making it easier for private lenders to extend lower rates even when you borrow up to the value of your home.

Read more: 2021 VA Funding Fee Chart

Va Loans And Seasoning

VA loans work much the same way as FHA loans when it comes to seasoning requirements. If you wish to take advantage of the VA IRRRL, Interest Rate Reduction Refinance Loan, you must wait at least six months before you can refinance. This gives the VA and the lender time to see that you can make your housing payments on time. This is the basic requirement to get approved for the VA IRRRL program, so it is important that you wait this length of time.

If you wish to take cash out of the home, technically, you do not have a seasoning period that you have to wait out. If you purchased the home recently, however, the original appraised value will be used you cannot take advantage of any appreciation your area experienced. This helps to prevent borrowers from taking money out of an inflated value that might not stick in the long run.

Refinancing a mortgage is possible shortly after purchasing the home, but it is typically not in your best interest to do so. If you wait six months to a year, you can either gain sufficient equity in the home to make a refinance less risky or you can show the lender that you can afford the current payments. This helps any lender, whether it is for an FHA, VA, or conventional loan, see that a lower payment would be even less risky for them. Because refinances take time and money, the lender needs to make sure it is worth it to write another loan for you and that you are not a foreclosure risk for them in the near future.

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How Seasoning Prevents Flipping

When a lender or mortgage program requires at least 12 months of seasoning, it prevents investors from purchasing a home for a low price and then selling it for an inflated price shortly down the road for a profit. This is common with the sale of foreclosures or short sales on the market. In addition, seasoning prevents investors from continually refinancing a mortgage on a home, taking out every penny of equity that exists and then letting the home go into foreclosure. When there is a required waiting period in between mortgage transactions, investors cannot take advantage of the equity in the home and then walk away from it, leaving it for the bank to sell.

Why Might I Want To Get A Va

A VA-backed cash-out refinance loan may help you to:

• Take cash out of your home equity to pay off debt, pay for school, make home improvements, or take care of other needs, or
• Refinance a non-VA loan into a VA-backed loan

On a no-down-payment loan, you can borrow up to the Fannie Mae/Freddie Mac conforming loan limit in most areasand more in some high-cost counties. You can borrow more than this amount if you want to make a down payment.

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Refinancing A Rental Property You Bought With Cash

Delayed financing refers to the practice of buying a home with cash, then reimbursing the purchase with a refinance.

Because there are no loans on an all-cash home purchase, any subsequent refinance is technically a cash-out one.

Normally, the rental property buyer would need to wait six months to get reimbursed per standard cash-out rules. That ties up a lot of cash for a long time not the ideal situation for a savvy investor who wants to put their money to work elsewhere.

So, in mid-2011, Fannie Mae rolled out the delayed financing exception. Home investors may now receive a cash-out refinance just days not months after closing.

Guidelines for delayed financing are as follows.

• The buyer paid cash for the home
• The buyer must document the source of funds for purchase
• Loans or liens opened to buy the home must be paid off with the new loan
• A title search must confirm no financing on the purchased home

Keep all documentation for the home purchase if you plan to use the delayed financing exception. Most importantly, keep a final Closing Disclosure showing your closing date and loan terms.

Exceptions To Mortgage Seasoning

If you accept a gift from a friend or relative to help cover the down payment or closing costs, the funds dont have to be seasoned in your bank account.

Refinance seasoning requirements also dont apply if you inherit the property. Similarly, if a divorce court awards you the property, refinance seasoning limits dont apply.

As touched on above, refinance seasoning similarly doesnt apply for renovated properties. If you have majority ownership of an LLC-owned property and transfer it to yourself, the waiting period likewise doesnt apply.

Seasoning requirements dont generally apply to investment property mortgages, either.

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Wouldnt It Be Better To Just Use My Credit Cards For Major Projects

No! You may think youre earning rewards or benefits by putting large debt on your credit card, but its going to cost you significantly more in variable interest rates, high APR, fees, unfavorable terms, etc. If you carry too much debt on a credit card, it can hurt your credit score due to a high credit utilization rate. A cash-out refinance is one of the smartest ways to borrow money because of its low interest rates. Plus, it allows you to create a consistent monthly payment that you know you can afford and pay back over time.

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Where To Apply For A Rental Property Cash

Once you factor all of the above into your decision, you may find that a cash-out refinance on your investment property can help you buy more rental homes or make improvements on existing properties.

The key with this option as with any refinancing is the new mortgage should either lower your monthly payments right away or put more cash flow into your pocket over time. If a non-owner-occupied cash-out refinance has one of those outcomes, then you should speak with a lender who specializes in these loans.

Most of todays lenders offer cash-out refinances on rental properties at similar terms. You can get started on your application now. A loan officer can pre-qualify you and give you a rate and payment quote, which is the first step to making sure this type of mortgage refinance is the right move.

Tim Lucas

Editor

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Fha Cash Out Seasoning Requirements

FHA loans allow borrowers to cash out up to 85% loan-to-value for primary residences. They can be easier to qualify for when it comes to credit and capacity than conventional loans. FHA minimum property requirements can be more difficult than conventional appraisal standards.

For FHA cash out seasoning requirements, the property muse be owned and occupied for 12 months. For a rate and term refinance and streamline refinances, requires six months to have passed from the first payment due.

No Seasoning On Investment Properties

There are investment programs that allow borrowers to cash out with no seasoning requirements. Mortgage seasoning requirements often play a factor when it comes to favorable terms. For example, if a property is seasoned for three months, the terms can be more competitive.

These programs allow investors to qualify without personal debt-to-income ratios. The property qualifies based on debt-service ratio also known as aDSR loan.

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Cash Out Conventional Refinance

A cash-out refinance has stricter rules in regards to refinancing with a conventional loan. You will have to own the home for at least six months before any funds can be disbursed on a new loan. In addition, if the home was for sale during the preceding six months, the maximum LTV you can get approved for is 70%. The home also must not be on the market when you go through the refinance process.

Requirements For Investment Property Cash

Investment properties are non-owner-occupied, which means the lender takes on more risk when providing a cash-out refinance. Thats why lender requirements are slightly stricter than they would be if you were refinancing your primary residence.

For example:

You can only use a conventional loan to complete a cash-out refinance on an investment property. Loans backed by the Federal Housing Administration , Department of Veterans Affairs , or the U.S. Department of Agriculture dont allow for cash-out refinances on investment properties.

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You Wont Get Cash Immediately

Similar to when you buy a home, you must submit to underwriting and appraisal processes before your lender approves your refinance. Even after you close, the Truth in Lending Act requires your lender to offer you 3 days to cancel the loan if you have a change of heart, and you wont get your cash until 3 5 days after closing. If you need money immediately, a cash-out refinance may not be the right solution.

What Is A Mortgage Refinance

A mortgage refinance is taking out a new mortgage loan to replace your existing one. The new mortgage pays off the entirety of the first mortgage and then your new monthly payments will go towards paying off the new loan. Note that a refinanced mortgage is not the same thing as a second mortgage.

To refinance your mortgage, youll need to go through many of the same steps that are involved in getting a standard mortgage. In most cases, you can choose to get a refinance with your current lender or with a new one. The lenders involved will handle most of the work, so you wont have to worry about transferring funds between them.

Once the process is complete, youll continue making monthly payments, but they will go towards the new mortgage. From your end, little about the process will change except the monthly payment. The mortgage refinance rates and terms will dictate whether the new payment is higher or lower and how many years it will take to pay off the new loan.

The benefits of refinancing your mortgage include:

• Saving money in interest with access to the lowest refinance rates
• Changing your monthly payment
• Enabling you to take advantage of the equity in your home

In addition to looking for the best refinance mortgage rates, you can also change the terms . If you want a lower monthly payment, you can refinance with a longer-term loan. On the flip side, if you want to pay the loan off as quickly as possible, you can refinance with a shorter-term loan .

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Minimum 0 To 6 Months Payments In Reserve

Lenders might also require you to have cash reserves in the bank in case of financial difficulty, such as a unit vacancy. The amount of reserves youll need depends on the other aspects of your financial profile:

• Investors with one rental unit: You wont need any cash reserves if your LTV and DTI ratios are low.
• Investors with two to four units: Borrowers with a high DTI and lower credit score may be required to show they have up to 12 months worth of reserves in the bank.

Shop Around With Lenders

Theres a common misconception about mortgage loans backed by the VA. A lot of borrowers have the idea that all VA lenders work the same way.

This isnt true. The VA authorizes private lenders and sets general rules for VA loan underwriting. But different lenders use their own underwriting guidelines, too.

As a result, you could get a lower refinance rate or lower origination fees by shopping around with at least three different lenders.

Its not good enough to compare advertised interest rates which are almost never the same rates you can get. Youd have to apply for a pre-approval to get an accurate quote.

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Youll Pay Closing Costs

Just like when you buy a home or close on a home equity loan, youll pay closing costs when you refinance. Some common refinance closing costs include credit report fees, appraisal fees and attorney fees, depending on your state. If you only need to take out a very small loan, you should take a look at whether the closing costs would negate anything you save with a lower interest rate.