Does Your Rental Property Fit in a Lender’s Box?
Categories: Blog Posts
Understanding whether your rental property fits into a lender’s box is key to getting the financing you need. Each lender has specific requirements, and one of the big ones is seasoning. Let’s dive into what seasoning is, why it matters, and how you can navigate lender requirements for your property.
What Is Seasoning?
In lending, “seasoning” refers to how long you’ve owned a property. From the moment you buy a property, it starts “seasoning” in the lender’s eyes. The longer you own it, the more seasoned it becomes. Lenders often have rules about seasoning, especially when it comes to cash-out refinances.
- Example: If you bought a rental property two months ago, it has two months of seasoning.
How Seasoning Affects Your Cash-Out Refinance
If you’re planning a cash-out refinance, most lenders want the property to be seasoned for a certain period. For example, many traditional lenders require 12 months of seasoning before they’ll allow you to take cash out. However, some DSCR lenders, who focus on a property’s income potential, have more flexible seasoning requirements.
Typical Seasoning Requirements:
- Traditional Loans: Usually require 12 months of ownership.
- DSCR Loans: Often require just 6 months of seasoning.
- Shorter Terms Available: Some DSCR lenders even go as low as 3 months and, in rare cases, 0 months.
Why Seasoning Matters for BRRRR Investors
For investors using the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy, seasoning plays a huge role. The goal is to buy, fix, and rent a property quickly, then refinance to pull your cash back out for the next deal. A shorter seasoning period lets you access the property’s appraised value sooner, which is ideal for keeping your investment cycle moving.
Example of Why Short Seasoning Matters:
Imagine you bought a fixer-upper for $275,000 and put $25,000 into rehab. After the work, the property appraises at $400,000. Here’s why you want a shorter seasoning period:
- With 12-Month Seasoning: You’d have to wait a full year to access that $400,000 appraisal value.
- With 6-Month Seasoning: You could refinance in half the time, freeing up funds to invest in your next project.
- With 3-Month or No Seasoning: You’re moving even faster, which is ideal for BRRR investors aiming for quick turnaround.
Find the Right DSCR Lender for Your Project
Not all DSCR lenders are the same. Each has its own box of requirements, including different seasoning rules. Here’s what to look for:
- Know the Seasoning Requirement: Make sure the lender’s seasoning timeline matches your goals.
- Consider a Broker: Brokers often have access to multiple lenders, giving you options that a direct lender might not offer.
- Check for Flexible Terms: Some lenders allow for 0-3 months seasoning, which can be a game-changer if you want to move fast.
The Loan Cost Optimizer Tool
At The Cash Flow Company, we understand that finding the right lender box can be challenging. To help, we offer a Loan Cost Optimizer Tool. This tool lets you compare costs and options across lenders to find the best match for your deal, whether it’s a fix-and-flip, DSCR, or traditional loan.
Ready to Get Started?
If you’re ready to explore your options, visit The Cash Flow Company and use our Loan Cost Optimizer to see where your rental property fits best. And if you have questions, feel free to reach out—we’re here to help you make your investing journey smooth and profitable!
By knowing where your rental property fits in a lender’s box, you can move confidently from one project to the next without delay.
Watch our most recent video to find out more about: Does Your Rental Property Fit in a Lender’s Box?
