What is a seasoning period and how does it affect an FHA mortgage loan? Simply put, the seasoning period is a required amount of time a borrower may be required to wait before even being allowed to apply for a new loan.
Who does the seasoning period concept affect and why? What are the FHA home loan rules for these periods and when are they applicable?
FHA Loan Seasoning Periods: The Basics
A seasoning period on an FHA mortgage may be applicable for a new purchase loan in some cases, and refinance loans in others. For new purchase FHA home loans, the seasoning period applies most often to those who have had a negative credit event such as a bankruptcy or foreclosure.
Bankruptcies and foreclosures require the borrower to wait a minimum of one year or longer (depending on the nature of the negative credit event and other factors) before applying for a new mortgage. Some situations will require two years minimum, others may not.
FHA Minimum Requirements Versus Lender Requirements
It’s important to point out that these are FHA minimum standards and our discussion here does NOT address lender standards which will vary depending on the financial institution and other factors. State law may also determine what is possible in a given circumstance.
FHA Loan Seasoning Periods For Refinance Loans
Not all seasoning periods are required due to negative credit events or related issues. Some are simply a requirement that the borrower must make X number of payments or wait X number of months before applying to refinance a current mortgage loan. This may be true for FHA refinance loans no matter if they original mortgage is an FHA loan or not.
FHA seasoning period requirements will vary depending on the nature of the transaction, but let’s examine the requirements for an FHA Streamline Refinance loan where the original FHA mortgage is refinanced with no FHA required credit check or appraisal; according to HUD 4000.1, a new streamline refi loan from the FHA is an option only after the following:
- At least six payments must already be made on the FHA-insured Mortgage that is being refinanced;
- At least six full months must have passed since the first payment due date of the mortgage;
- At least 210 Days must have passed from the closing date of the original Mortgage.
Again, these standards are the FHA requirements and do not speak to additional lender policies or overlays. FHA refi loans will generally require a new appraisal and credit check except in certain cases (FHA streamline refinance loans, for example) where there is no FHA rule directing such except when the borrower is applying for a credit qualifying FHA Streamline loan. The lender may require one anyway