What Is Mortgage Loan Seasoning? | 2024 Requirements

Understanding mortgage seasoning and why it’s important

If you have ever bought or refinanced a home, you’ve probably heard the term “mortgage seasoning.” And while it may sound culinary in name, in the context of mortgages, seasoning has nothing to do with cooking and everything to do with time.

Mortgage seasoning refers to the length of time that has passed since a specific financial event, credit occurrence, or the opening of a mortgage.

Why is seasoning a term that prospective homebuyers and existing homeowners need to understand? Here’s what you should know.

In this article (Skip to...)

• What is mortgage seasoning?
• Types of mortgage seasoning
• Seasoning requirement based on loan type
• Seasoning exceptions
• The bottom line

What is mortgage seasoning?

Lenders assess risk in several ways. One such way is by analyzing your finances, including your overall financial stability. Enter mortgage seasoning requirements.

Mortgage seasoning refers to a required period that must pass before certain actions can be taken on a home loan. The amount of time that’s necessary varies depending on the type of loan and the specific action being taken.

Mortgage seasoning is important for homebuyers and homeowners looking to refinance, as it can significantly impact your eligibility and the terms of your mortgage.

Why lenders require mortgage seasoning

Mortgage lenders take on substantial risk when offering you a home loan. As such, they go to great lengths to make sure you can meet the long-term financing obligations involved with taking out a mortgage to help offset some of the risk.

Mortgage seasoning also helps your lender identify the potential for fraud or misrepresentation. Unless you’re a real estate investor, the average homeowner rarely tries to quickly sell or refinance a home shortly after buying it. Doing so can raise concerns that the homeowner is attempting to misrepresent the property’s value.

By observing a mortgage borrower’s on-time payment history and bank accounts over a certain period of time, mortgage lenders can better assess their financial stability and reliability. This practice helps prevent defaults and can help ensure homeowners are in a good position to handle their upcoming mortgage obligations.

Types of mortgage seasoning

Mortgage seasoning can refer to different aspects related to obtaining a mortgage loan.

Refinancing. After purchasing a home, a seasoning period is often required before you can refinance. Some homeowners have the option to refinance into a lower-rate loan immediately, with no waiting period. Others may need to wait six months, still others may need to wait 12 months. Seasoning can also come into play if you are refinancing to eliminate PMI (private mortgage insurance). In addition to needing at least 20% equity, there’s often a seasoning requirement of two years before you can refinance out of PMI.

Down Payment Seasoning: When you apply for a mortgage loan, lenders will typically request to see your most recent two months’ bank statements. Lenders generally require that the funds used for a down payment have been in your bank account for a certain period, typically “seasoned” for at least 60 days. This ensures the money being used for your down payment is legitimately yours and not borrowed temporarily. If your lender sees a sudden influx of cash that doesn’t look like it came from your regular income, expect them to ask you about it.

Bankruptcy and Foreclosure Seasoning: Bankruptcies and foreclosures don’t exempt you from getting a mortgage, but they could make things a bit more challenging. After a bankruptcy or foreclosure, lenders require a seasoning period before you can qualify for a new mortgage. Different lenders have different seasoning period requirements. As a general rule, you will need to wait at least one to two years after a bankruptcy discharge or four years following a foreclosure.

Reverse Mortgage Seasoning: When you take out a Home Equity Conversion Mortgage (HECM), the most common reverse mortgage loan program, the Department of Housing and Urban Development (HUD) imposes a seasoning requirement of one year for any other existing liens. Expect a similar reverse mortgage seasoning requirement for other types of reverse mortgages. Lenders may also have requirements related to the age of the homeowner or the length of time they’ve lived in the home.

Seasoning requirements based on loan type

Mortgage seasoning requirements differ based on several variables, including the lender, the type of home loan, as well as the purpose of the loan.

Conventional Loans

For conventional loans, most lenders require that your down payment funds be in your account for at least 60 days before they can be used toward a home purchase.

Your down payment cannot be borrowed. Lenders want to make certain you haven’t received a loan made to appear as a gift, as any loans could impact your ability to repay the mortgage.

For this reason, your lender may require the benefactor to provide a signed gift letter clarifying that the funds are a gift, not a loan. Additionally, you may need to verify the transfer of the gift funds.

Another seasoning requirement for obtaining a conventional loan is when it comes to refinancing. If you have a conventional loan, your lender will typically require a six-month seasoning period before you can refinance, meaning six mortgage payments have been made.

If you’re doing a cash-out refinance, you should plan to wait at least six months and have at least 20% equity in your home.

FHA Loans

Federal Housing Administration (FHA) loans have similar seasoning requirements to conventional loans.

Most mortgage lenders need to see that any funds being used for your down payment have been in your account for 60 days to be used towards the purchase of a home with an FHA loan. There are exceptions to this rule, however.

FHA guidelines state: “If a VOD (Verification of Deposit) is not obtained, a statement showing the previous month’s ending balance for the most recent month is required. If the previous month’s balance is not shown, the Mortgagee must obtain statement(s) for the most recent two months.”

If you’re looking to refinance an FHA loan, you usually need to wait at least 210 days from the date of your last mortgage payment and have made at least six mortgage payments.

VA Loans

Veterans Affairs (VA) loans do not usually require a down payment, but there are certain circumstances in which a down payment may be necessary.

For example, if your home appraises for a lower amount than the contracted price, the VA loan limit is higher than the VA loan limit, or you have partial entitlement, you may need to come up with a down payment. In these circumstances, veterans and active-duty service members will need to provide their most recent two months bank statements.

When refinancing a VA loan, you must wait at least 210 days from the closing date of the original loan and have made six consecutive monthly payments.

Exceptions to down payment seasoning requirements

Not all funds used for your down payment require seasoning.

For example, bonuses received from your employer and tax refunds, do not need to follow seasoning timelines. These funds can typically be used for covering your down payment immediately.

Additionally, if you receive money that is gifted from a relative, these funds generally do not have seasoning requirements. However, if there’s a cash deposit that appears in your bank account less than 60 days before applying for a mortgage, you’ll need to provide documentation that it was a gift.

The bottom line on mortgage seasoning

There are several methods lenders use to determine a mortgage borrower’s eligibility. Mortgage seasoning requirements is one such tactic that provides a safety layer for lending institutions when qualifying you for a home purchase or refinance.

Bear in mind that different mortgage lenders have varying rules when it comes to mortgage seasoning. Be sure to shop around and ask your lender about their seasoning requirements.

Lastly, if you get denied by a traditional lender due to seasoning, don’t give up hope. Some mortgage companies offer non-qualified mortgages (Non-QM) that have more lenient mortgage seasoning requirements.