Posted by Pat on March 26, 2006 at 19:16:35:
The seasoning issue comes up when a buyer goes for financing. FHA, which backs a large amount of the loans out there, requires a seller to hold on to the property for at least 180 days. Other organizations have likewise jumped on the bandwagon. Some require longer periods and some don’t require any. This is where knowing who’s who in the zoo comes into play.It also menans knowing what your carrying costs will be as well.
Title seasoning - Posted by Jeff
Posted by Jeff on March 26, 2006 at 16:50:00:
In a purchase and rehab(3-6 months time)What are issuse that come up with buyers and title seasoning. That is one thing I have read on here recently and with my first deal there was never a mention of that.
What are problems that can develop? possible protection agaist it? Issues in general?
Thanks
Re: Title seasoning - Posted by John Corey
Posted by John Corey on March 28, 2006 at 07:56:03:
Jeff,
Natalie and Pat have pretty much covered the point.
Ultimately the issue will come down to how you sell. If you rehab and then expect full retail you will be attracting buyers who might not be sophisticated. They will make their offer and then apply for a loan (if you accept the offer). They will not understand that the lender they choose might kick the deal out at the last minute when they notice how long you have been on title. Then the underwriter checks what you paid for the place and says the jump is too much. If the jump is small you are doing bad deals so that is not likely to happen.
Some lenders will let you show before and after details to justify the change in price. Other lenders do not care about seasoning. The issue is your retail buyer might not feel comfortable having to use the lenders you recommend as they might think there is something fishy going on.
Some sellers seem to never have problems. Other times you will have about 4 deal failures in a row on the same how as the buyer kept getting kicked out at underwriting.
Protection against seasoning being an issue?
Steer the buyer to lenders that will work with the property.
Agree to a 6 month or 12 month lease/option.
High credit score buyers with ample cash down payments can get you past a seasoning requirement.
Sell to other investors and not retail.
Why is there seasoning? Lenders have been burned when 1 home goes up dramatically compared to the area. Even if it was an REO they can still get burned - mostly mortgage fraud. Rather than spend the time to look on a case by case basis, the lender finds they eliminate much of the risk by banning deals that lack seasoning. They might lose a few loans and do a few less transactions. That potential loss is tiny compared to funding a loan that goes bad and where there was fraud.
So, a very crude way to eliminate the deals on the edge so less fraud happens.
John Corey
Re: Title seasoning - Posted by Natalie-VA
Posted by Natalie-VA on March 27, 2006 at 09:37:20:
Jeff,
Your best bet is to talk with the loan officer of your buyer BEFORE you sign a contract. Tell them how long you’ve owned the property and see if it’s an issue. If you don’t bring it up, they won’t find out until right before closing, and that can get ugly.
Generally speaking, if your buyer is getting a VA loan, there will be no issue.
If your buyer is getting an FHA loan, you will have to have owned the property for at least 90 days. That’s 91 days from your settlement until the day you sign a contract with a new buyer.
If your buyer’s loan is conventional, talk with the loan officer. Brokered, non conforming loans have a higher probability of having issues. Loans from local lenders have a lower chance of having issues.
Some lenders will ask you for additional documentation. I have been asked for receipts for improvements. I’ve also been asked to prove that my financing was investor financing and not owner occupied financing.
This has just been my experience. I hope it helps.
–Natalie