Seasoning your Real Estate
Seasoning has nothing to do with salt and pepper, in real estate, seasoning is the lenders term for how long you have owned your property.
When you want to refinance a property, the lender considers seasoning to decide which value to use for your property. There are 3 numbers that matter:
- Purchase Price
- Rehab cost
- Current value or ARV
Seasoning no longer matters when you have owned the property for one year. You always use the current value for those fully seasoned properties.
If you have owned it less than one year, the lender may decide the purchase price represents the current value, and base a loan on what you paid for the house. (Or the current value, if that number is lower.) Some of the more investor friendly lenders will add the rehab cost to the purchase price and use that total instead. Obviously, that’s better for you as the borrower.
It’s gets more fun, because there is an exception to every rule. When you have finished the property and rented it, we can request an exception to rule. Since we only work with investor friendly lenders, here’s a general guide.
Owned 12 months+: use current value.
Owned less than 6 months: use purchase price plus rehab (your personal labor doesn’t count). It’s rare, but it is sometimes possible to use current value. Just don’t count on it.
Owned over 6 months, but less than 12 months. The closer you get to the 12 month mark, the more likely we will succeed in getting an exception to use the current value. The property cash flow, borrower strength, and investor experience will greatly impact whether the lender will approve an exception. For good borrowers and good cash flowing real estate, we often get them approved around the 8 month point.
I know the waiting is killing you. As investors, we’re an impatient bunch. However, consider the lender’s perspective. They want to make good loans that will perform well. They will be cautious refinancing any real estate with under one year seasoning for more than what you paid. You have to show that you have truly increased the property value since your purchase.
Contact Us here to discuss your options.