What is the Importance of Loan Seasoning in Commercial Real Estate?
In commercial real estate finance, seasoning refers to the amount of time that a borrower has held a specific loan. Therefore, a seasoned loan is one that has been held for a certain period of time. Many types of loans, including HUD multifamily loans and Fannie Mae/Freddie Mac multifamily loans have specific loan seasoning rules, especially when it comes to refinancing. In addition, most commercial and multifamily lenders will not let you take out a commercial equity line of credit unless your loan has been seasoned for at least one year.
Freddie Mac Supplemental Financing Requires Loan Seasoning
One of the most common examples of loan seasoning is the Freddie Mac Supplemental Loan, which offers additional financing for investors who have already taken out a Freddie Mac multifamily loan on a property. While it’s true that borrowers can apply for a split supplemental loan (which is originated simultaneously with the initial loan), in all other cases, borrowers will have to sit through a 12-month seasoning period before they can receive supplemental financing. supplemental loans as they wish, but will have to wait for another 12-month seasoning period between each.
In addition, Freddie Mac Manufactured Housing Resident Owned Community Loans permit seasoned refinances. However, this type of seasoning is more flexible, as it depends more on the amount of shares in the community that have been sold to residents than the specific amount of time that has passed after the original loan.
Other Loan Programs May Require Seasoning In Practice
While not every loan program has an official seasoning period, many commercial lenders will be unlikely to offer a borrower a refinance or a supplemental loan for a certain period after they have received initial financing. This occurs for a variety of reasons, but primarily because a borrower has not demonstrated that they’re reliable if they have only been making payments on a loan for a few months. For instance, while there is no specific seasoning requirement for the HUD 223(a)(7) refinance, lenders are unlikely to offer it to a borrower who has held a HUD multifamily loan (such as a HUD 221(d)(4) or HUD 223(f) loan) for less than 2-3 years.