If you've never had to quickly refinance or pull cash out of your house soon after purchasing it, you've probably never come face to face with the term "mortgage seasoning." Lenders, however, care a great deal about how long you've held your loan and whether your home has appreciated enough to warrant refinancing or selling at a higher price. Lenders review a mortgage's seasoning as a safeguard to prevent mortgage fraud and inflated home values. Depending on the lender, the length of time you've held title to your property could determine whether you're able to refinance or sell it to another party.
What's Your Loan's Age
Lenders refer to mortgage seasoning as the age of your loan and how long you've been on the title. Lenders consider a loan to be fully seasoned if you've had it for at least a year. Allowing your loan to season may help you in the future if you're building equity in your home and plan on refinancing it for the purpose of pulling out cash, making improvements or taking advantage of a lower interest rate.
Full mortgage seasoning may not be a big deal to lenders if you're trying to refinance an immature loan. But in some cases, if you want to pull cash out at the time of closing and tap into your equity, the seasoning of the loan could be crucial. For example, Fannie Mae requires at least six months of seasoning before you can refi and pull out additional cash at closing.
The assessment of a mortgage's age by lenders is in part a measure to prevent mortgage fraud. A lender will review a loan with very little seasoning more closely than a loan that's fully seasoned to ensure loan flipping is not taking place. Loan flipping happens when you refinance a loan and pull cash out and attempt to repeat the process in a short period of time. The lender's fear is that you will eventually let the home go into foreclosure after you've extracted all the cash you can out of it.
Value And Appreciation Conditions
In general, lenders also worry about refinancing or underwriting a loan on a purchase contract on an unseasoned loan without documentation supporting the home's value. Since the home may not have appreciated enough in a year's time to justify a new mortgage, be prepared to prove the home has increased in value through new home improvements and that the neighborhood is holding its value. In most cases, a new appraisal may be necessary.
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