Assets and Reserve Requirements

When applying for a mortgage, a mortgage broker or bank will likely inquire about your assets, and more specifically, your liquid assets. They’ll want to know what you’ve squirreled away in order to provide a down payment, pay closing costs, and make monthly mortgage payments going forward.

So unless you’re relying on a documentation type that doesn’t require the verification of assets, it’s very important to make sure you’ve got plenty of assets in your personal accounts. Not only that, but those assets will be need to be seasoned for at least two months in most cases.

Many prospective homeowners make mistakes when handling their assets prior to a mortgage transaction, thinking they can shuffle some assets from a friend or family’s account into their own without incident. Unfortunately, this doesn’t fly with many banks and mortgage lenders because the money isn’t properly sourced or seasoned. Banks and lenders will want to ensure the money is in the borrower’s account, and that it’s been there for several months before they’ll accept those assets.

They do so to verify that the borrower has established a savings pattern, and that the assets support the stated income (if applicable). They ask that it be seasoned so the borrower doesn’t just borrow money to falsely inflate their overall financial position for the sake of securing a lower mortgage rate.

Asset Reserve Requirements

If you get your hands on a rate sheet, or talk to a bank or mortgage broker, they’ll usually tell you how many months of reserves you’ll need to verify assets and qualify for a mortgage.

Asset requirements will be defined in terms of PITI (Principal Interest Taxes and Insurance), meaning you’ll need enough money to pay for “X” amount of months of mortgage payments including principal, interest, taxes and insurance.  And mortgage insurance, where applicable.

Reserve requirements will vary from bank to bank, and from mortgage program to mortgage program, but you can get a good idea of what you may need to provide for different property types.

– Owner-occupied residences typically require two months PITI in reserves, but may ask for up to six months.

– For second homes, reserves can range between three to four months, but again, can be higher.

– On non-owner occupied properties, otherwise known as investment properties, reserves are usually six months PITI or more.

Reserves Needed for Specific Types of Loans

For Fannie Mae and Freddie Mac loans (conforming), reserve requirements vary based on credit score and LTV, along with property type.  They can range from as little as zero months to as much as 12 months, depending on the scenario.  As a rule of thumb, more risk requires more reserves.

There is no reserve requirement for FHA loans on 1-2 unit properties. However, 3-4 unit properties typically require three months of PITI.

For VA loans, there isn’t a reserve requirement unless it’s a 3-4 unit property, at which point six months reserves are required.  Additionally, three months of reserves are required for each rental property owned that is not secured by a VA loan.

For jumbo loans, reserve requirements can vary tremendously, from as little as six months to several years, depending on how large the loan is.

Allowable types of assets:

  • Earnest Money Deposit
  • Checking/Savings/CD/Money Market Accounts
  • VOD
  • Business accounts
  • Stocks
  • Bonds
  • IRA/401k and other retirement accounts
  • Gift Funds/Gift of Equity
  • Sale of Assets
  • Seller contributions

Ineligible types of assets:

  • Cash on hand
  • Undocumented funds
  • Sweat equity
  • Unsecured borrower funds
  • Illegally obtained funds

Some useful tips regarding using assets for a mortgage:

– Move money into a checking or savings account the minute you start looking for a property. This will allow those funds to be seasoned, and thus won’t require sourcing.

– Get a VOD, or Verification of Deposit from your local bank that provides the overall balance of your account, and your average balance based on two months. This is better than providing bank statements, which may show payroll and other information that you may not want to disclose.  Even if the mortgage company initially asks for bank statements, a VOD should suffice.

– You may also use retirement accounts, but lenders typically only consider 70% of the total, so factor that in to ensure you have enough to cover reserves. *This can vary based on your individual lender’s guidelines.

– If you plan on using business accounts for assets, you’ll likely need to be the 100% owner. Although if you own only 50%, some lenders will accept a CPA letter stating what percentage the borrower has access to, and that the use of those funds won’t affect the business negatively.

– If you sell personal assets, make sure you save receipts to prove the source of funds. Acceptable items usually include automobiles, coins, art, and antiques.

– Generally you can use money from a joint account for reserves and down payment, but you’ll typically need to provide a letter from the other account holders explaining that you have full access to the funds.

– If you have any recent large deposits (usually defined as one that exceeds 50% of total monthly income) in your accounts, they may be scrutinized and/or unavailable for underwriting purposes depending upon their size.

Tip: At the end of the day, make sure assets are in personal accounts and seasoned long before applying for a mortgage!


86 Comments

  1. Jeremiah July 18, 2013 at 12:04 pm -

    I learned the hard way that depositing a ton of money into a personal account at the last minute doesn’t suffice. It needs to be seasoned for at least two months and if it’s a substantial amount, the lender is going to want to know the source of the funds. In other words, you need to shore up assets long before applying for a mortgage to avoid any scrutiny.

  2. Amelie July 20, 2013 at 5:56 am -

    You should also tell readers that jumbo loans typically require six months of PITI or more, seeing that they are larger loans and carry more risk.

  3. Stuart July 21, 2013 at 5:27 pm -

    Most portfolio loans (loans kept by the bank and not sold to Fannie/Freddie) require more than two months of PITI for asset verification. After all, they’re keeping the loans, so they actually want to know you’ll be able to pay back the loan if you lose your job.

  4. Lakesha August 15, 2013 at 8:27 am -

    This is one part of the mortgage process you don’t want to screw up. Put the money in an account and don’t mess with it. If you move anything or deposit a large amount during or right before the underwriting process, you’ll deal with a ton of red tape. Season those assets!

  5. Jane September 14, 2013 at 11:25 am -

    My lender wants me to have 6 months of reserve as I am buying a investment property. My daughter is loaning me the money to fund it and she wants her money back after closing. How long do I have to leave it in reserve after closing?

  6. Colin Robertson September 14, 2013 at 11:47 am -

    Once a loan funds and records, you can do what you want with the money, but gift letters specify that the money does not need to be paid back to the person who gave you the gift. And make sure the bank is okay with you using gift funds for reserves.

  7. Jane September 14, 2013 at 12:24 pm -

    Aprox. how long do I have to keep her money in my account before I apply for a loan? Thanks

  8. Colin Robertson September 14, 2013 at 1:32 pm -

    If you don’t want to use gift funds, your assets must be seasoned. Typically, banks will ask for your two most recent monthly bank statements for asset verification. Any sizable deposits that show up on these statements will be scrutinized by the lender, which is why it’s important to deposit money needed for reserves and/or down payment at least two months prior to applying for a mortgage. This way the deposit won’t be included in the bank statements you submit to the lender, which will make the funds seasoned.

  9. Steve November 12, 2013 at 10:58 am -

    Congratulations Jane, you’ve just admitted to bank fraud, in that you’re representing to the bank/lender that you have x amount of dollars in seasoned assets that you “OWN”, when in fact it’s only money your daughter is lending you to shore up this false asset account. It’s crap like this put the market where it is today!

  10. E. Briscoe January 15, 2014 at 1:43 pm -

    What are the asset requirements for an FHA loan?

  11. Colin Robertson January 16, 2014 at 2:02 pm -

    For FHA loans, you don’t need to provide asset reserves if it’s a 1-2 unit property. However, 3-4 unit properties typically require 3 months of PITI for reserves.

  12. Sierra February 26, 2014 at 11:02 pm -

    I’m applying for a mortgage on a $1,820,000 house; mortgage amount will be about $1,450,000. The lender says they require 18 months reserves. This seems quite high.
    Is it uncommon?

  13. Colin Robertson February 27, 2014 at 10:42 am -

    Sierra,

    It’s not uncommon when it’s a super jumbo loan amount, aka over $1 million, nearly $1.5 million. Put simply, the lender wants to know you can actually make payments for a while on such a large loan.

  14. Karin Worthey April 29, 2014 at 12:13 pm -

    I’m applying for a refi of $300k on my primary residence that was appraised at $480K. I have no liabilities. I own 2 other homes free and clear. My credit score is 820. I have over a million in stocks, CD’s, etc., going back many years. I have a 25 year employment history with the same employer. WHY IS THE LENDER TREATING ME LIKE A CRIMINAL? What regulations have I failed to meet?

    Thank you.
    K

  15. Colin Robertson April 29, 2014 at 12:56 pm -

    Karin,

    What are they asking for? What’s the problem?

  16. Cris May 21, 2014 at 6:51 am -

    Can I borrow money from my 401K to use for down payment for purchase of land if I don’t have the funds in bank account and list the 401K as an asset?

  17. Colin Robertson May 21, 2014 at 10:15 am -

    You might be able to borrow against the 401k to get the necessary funds, but the 401k loan payment may need to be factored into your DTI.

  18. Laurie May 22, 2014 at 11:07 pm -

    I have just been asked by my lender to supply six months reserve for an fha loan a week before closing, he is asking me to get a 12000.00 gift loan from my parents with documentation and then he says when we close I can give it back to them. I told him my parents don’t have 12,000.00 (originally he told me all we would need to close is 3900.00, he;s using the credit score as the excuse, it’s the same as when he pre approved us), anyway now he is asking if we will borrow it from him personally and then after closing we will pay him back. Does this sound fishy to you??

  19. Colin Robertson May 23, 2014 at 8:07 am -

    It’s possible that you would need a larger down payment (10% vs. 3.5%) if you credit score turned out to be below 580. Do those numbers add up in that respect? Gifts are normal, he probably assumed your parents had $12,000 to give you since they were originally on-board with $3,900…

  20. Brian May 24, 2014 at 3:38 pm -

    We have been pre approved for a $750k mortgage. We are planning on using a 80/10/10 mortgage. We have $30k in savings, $25k bonus added in two weeks and pulling $35k from an IRA to put towards down payment. We have over $200k in reserves, credit score of 775-780 and ann inc of $350k. Will taking money out of the IRA hurt our chances of qualifying for the loan?

  21. don anderson May 24, 2014 at 10:32 pm -

    my wife passed away unexpectedly recently, mortgage was in her name only (we never got round to adding my name) I have NOT contacted mortgage co. yet to her passing, my fear is they’ll insist on a new loan in my name rather than just taking over existing loan. I only work part time, so I’m income poor but I have assets (stocks, bonds, mutual funds ) over 200K current loan amount due is 140K. any advice? and any chance of qualifing for a loan with the amounts i supplied? thanks.

  22. Colin Robertson May 25, 2014 at 4:50 pm -

    Brian,

    Why are you pulling money from your IRA if you have over $200k in available assets?

  23. Colin Robertson May 25, 2014 at 5:32 pm -

    Don,

    Sorry for your loss. This is a pretty complex situation with a lot of variables, so speaking with a lawyer/estate planner might be advisable. It sounds like you’d have trouble qualifying for a new loan on your own, so a refinance might be tough, though it could be worth exploring if the current rate is significantly higher than today’s rates. With regard to the current loan, the Garn-St. Germain Act may provide you with some rights to continue making payments.

  24. Brian May 25, 2014 at 7:24 pm -

    Most of it is qualified money and stock options. Does that hurt our chances of qualifying?

  25. Colin Robertson May 26, 2014 at 9:06 am -

    Brian,

    As long as the source of the assets is acceptable, it shouldn’t affect qualifying. You mentioned that the bank already pre-approved you, so I’m assuming they already know where the money is coming from and are okay with it. Just make sure they fully understand your asset situation and also time everything properly to avoid delays as shuffling money can be time consuming.

  26. Caro June 2, 2014 at 11:46 am -

    My husband is applying for a mortgage and I am not included on the application because I am a full-time PhD student (to be done later this year) and have no job at the moment. He is close to being denied (at 51.5% instead of the required 50%). I own some valuable artworks and antiques and have a professional appraisal for each one – used for insurance purposes. Can I give or sell my husband these assets to help him get the loan for our house? If not, can he claim my retirement account as an asset without me being on the application? Thank you!

  27. Colin Robertson June 2, 2014 at 4:40 pm -

    Caro,

    You can ask if they’ll consider the antiques and artwork as a compensating factor, or alternatively try to get the DTI lower by buying down the interest rate and/or get a gift to lower the loan amount. Your loan rep should be discussing ways to rework the loan to make it eligible.

  28. Arvind June 17, 2014 at 8:32 pm -

    My closing is on June 19 and today on June 17th the mortgage broker said that the mortgage insurance is asking for seven months reserve of $24000

    So i sent him my 401k statement which has $29k. Do you think that should be fine?(FYI, I also took a loan from my 401k for the amount of 20k for making down payment, so the available 29k is after the loan amount)

    Also why is mortgage insurance asking me for seven months reserve, while the lender bank already said its clear to close.

    As per the broker he said once the mortgage insurance reviews your seven months reserve evidence then they should be able to provide me with a HUD statement.

    Now I just have one day left to close, should that be fine, for things to sort out?

  29. Colin Robertson June 17, 2014 at 9:34 pm -

    Arvind,

    The mortgage insurer has its own underwriting guidelines. Retirement assets may be discounted to account for market volatility and early withdrawal penalties, so I don’t know if you will have a sufficient amount of reserves. You should be speaking with your broker regarding this matter to ensure you have enough funds to close. He or she should know.

  30. Debra June 26, 2014 at 8:06 pm -

    My husband and I applied for an fha loan the underwriter is requiring a 3 month reserve is this okay and why

  31. Colin Robertson June 27, 2014 at 9:38 am -

    They wouldn’t be asking for it just for the sake of asking, so it’s probably “okay.” Maybe it’s a 3-4 unit property? Or a compensating factor for a high DTI ratio. Ask them why!

  32. Maxi August 14, 2014 at 10:54 pm -

    I have conventional loan and an investment property( 2 units) which has >30% equity . initial request was 6 months reserves on investment only . I presented all that was requested., now they came back from underwriting ,they are requesting 12 months reserves on both investment and purchase. I am putting down 20% ,credit score is 729. I also have all liquid assets they are requiring she is also requesting I verify 10,000 that has been in account since 5/09/14 which is 3 months ago which I received from a tax return ..Are there guidelines that are in place stating that with Freddie and Fannie loans if there is more than 30% equity that you shouldn’t need more than 6 months reserves ? My closing date has come and gone and I feel as if I am being jerked around .what is your take on this?

  33. Colin Robertson August 15, 2014 at 9:58 am -

    Maxi,

    The required reserves can depend on the bank and the loan program and what the underwriter discovered when looking at your loan file. It sounds like you have the money and they’re in the process of reviewing some of the funds. If your principal residence is pending sale or converting to a second home/investment property, there could be additional required reserves, which is based on whether the current principal residence has 30% equity or not, but that doesn’t sound applicable to your situation.

  34. Hope August 19, 2014 at 2:26 pm -

    We have a loan for a 1Mil. They are asking for a 12 month reserve. We have a lot in stocks, they are asking us to have Cash in Bank. Do we really need to extinguish our stock to show we have money on reserve, or should the stock be enough?

  35. Colin Robertson August 19, 2014 at 5:23 pm -

    Hope,

    Stocks are considered liquid financial assets, but the particular jumbo lender you’re working with might want to know you’ve actually got some cash savings in the bank as well seeing that they’re giving you a $1 million loan. If you’ve only got investments and no or minimal savings, the underwriter might be hesitant. However, you shouldn’t have to sell your stock…ask them what works and go from there.

  36. John August 23, 2014 at 10:21 pm -

    I am buying a $236,000.00 home in Cook County, Illinois. I am putting 5% down. It will be an owner occupied home. My front end ratio is 17% and my back end ratio is 44%. Credit score is 755. How much in reserves do you think Chase will ask me for? I am a current Chase customer. Thanks in advance of your help. Your comments are very helpful.

  37. Colin Robertson August 25, 2014 at 9:58 am -

    John,

    It depends what the automated underwriting comes up with, but with your high credit score on a primary residence you might not need any. But it’s always good to have healthy reserves to strengthen your application.

  38. David Smith September 2, 2014 at 7:20 pm -

    I am an unusual case in that I am a bond trader/investor. In my smaller taxable account over the past several years I have averaged around $15,000 per annum. That in addition to my Social Security of $12,000 annually. However, I do most of my trading/investing in my IRA account and that is presently around $1,650,000. I have a liquid net worth of $1,775,000 and debt free. I am thinking of buying a vacation home for around $279,000 and putting around $140,000 down. I would just buy it outright but don’t want to dip too much into my IRA because of the taxes. Am I going to be told my income is too little to qualify even though I have over $1,600,000 in my IRA?

  39. alan September 2, 2014 at 10:24 pm -

    I believe I have a good credit score and plan on using a combination of hardship withdrawal on my 401k and a giift amount from my parents. Unfortunately I have been very bad at saving beyond my 401k contributions, however i do have a good credit score. Will i be questioned on my spending history and do you think it will affect getting approved for a first time residence purchase? My spending has not incurred substantial credit debt.

  40. Colin Robertson September 3, 2014 at 10:17 am -

    It certainly helps to have your own assets set aside for the purchase of a home, but if you have low debt and good credit, you might not need much if anything in reserves. Not sure why a lender would question your spending history unless you have lots of associated debt.

  41. Colin Robertson September 3, 2014 at 10:20 am -

    It’s quite possible you could run into some issues but there are a lot of portfolio programs nowadays for individuals with limited income but a ton of assets. Or perhaps you could put more money down to get the monthly payment below DTI cutoffs.

  42. claudia November 17, 2014 at 2:13 pm -

    Hi Colin
    I have a question I’ve been told that my fha loan has been conditionally approved however my broker is asking if i have more money for downpayment some of my downpayment was gifted with all required docs being presented and the remainder I provided why is my broker asking for more money and if have been conditionally approved will I get the clear to close

  43. Colin Robertson November 18, 2014 at 10:18 am -

    Claudia,

    You may want to ask your broker why he’s requesting more money down. Could be that the underwriter wants to see more funds to approve the file.

  44. Erin November 23, 2014 at 7:32 pm -

    Hi. I am about to start searching for a home. I’m planning on withdrawing $10,000 from my IRA to fund my down payment on my first home. I will have funds left in the IRA and in a 401k. I’ve been working on paying down debt and haven’t saved as a result. Should I withdraw the IRA funds now to have it season in my bank account? The only catch is that I can avoid a 10% penalty on the $10,000 hardship withdrawal if I use the money for the purchase of a home within a prescribed period of time, so I don’t want to take it out to soon. Also, do I need to have this money in my savings account to get pre-approved? My credit score is 759.

  45. Colin Robertson November 24, 2014 at 1:12 pm -

    Erin,

    The IRS rule provides a 120-day window to use the IRA distribution for a home purchase without penalty. The funds in an IRA don’t need to be moved into another account for a certain period of time if they’re already seasoned. A paper trail documenting where the funds were transferred from should satisfy the seasoning requirement.

  46. Bob January 4, 2015 at 10:35 am -

    Colin,
    Can a documented personal loan with interest payments be used as an asset/income when qualifying for a mortgage?

    Bob

  47. Whitney January 4, 2015 at 1:07 pm -

    Colin,

    We are a very young couple with two toddlers. My husband makes 120k a year, has averaged 30k in vested stocks per year, with another 150k in stocks vesting every 4 months through 2016. We have 20k in savings, 45k in retirement, and 20k in equity on a rental property that earns us 300 per month after paying the mortgage. We are worried about securing a decent mortgage when we move in four months due to lack of cash on hand. My father has pledged a gift of 25k to help with either a down payment or reserves. How do unvested stocks help or hurt our mortgage application? Any advice on preparing for the application process?

  48. Colin Robertson January 5, 2015 at 11:01 am -

    Generally, retirement accounts must be vested and available for withdrawal to count toward reserves. If you’re concerned about eligibility, obtaining an early pre-approval might be smart to avoid any surprises late in the game.

  49. Colin Robertson January 7, 2015 at 5:03 pm -

    Per Fannie Mae guidelines, personal unsecured loans are not an acceptable source of funds for down payment, closing costs, or reserves. There are similar guidelines for other types of mortgages based on the idea that you can’t get a loan to get another loan.

  50. Dave January 21, 2015 at 7:38 pm -

    Started working with a Real-Estate Broker after pre-approval for apartment loan. I have the 20% down payment and some in reserve, however the broker seems unsatisfied. The issue seems to be that I am expected (by the broker) to have at least another 15-20% of the price of the apartment in reserves. Also these reserves should not include investments which could suffer from early withdrawal penalties, i.e. 401K, IRA, etc. Is this a real requirement? Are potential buyers expected to have 2xDownpayment? How much is a potential buyer expected to put aside from the initial downpayment?

  51. Colin Robertson January 21, 2015 at 8:35 pm -

    Hey Dave,

    This asset page isn’t geared toward multifamily loans for apartments, but mortgage lenders do discount assets that can suffer from early withdrawal fees, penalties, taxes, etc. It’s real.

  52. Dave January 21, 2015 at 9:23 pm -

    Thanks Colin,

    This is for a 1 bedroom apartment. I’m wondering if after making a downpayment of 20% having another 20% (same amount) in savings is commonly required when purchasing an apartment?

  53. Colin Robertson January 22, 2015 at 11:21 am -

    I wouldn’t say it’s common because that’s a lot of money to have on reserve. Generally it’s a couple months of reserves to make mortgage payments.

  54. Miguel February 3, 2015 at 5:51 pm -

    I have plenty of seasoned and unseasoned funds, but prefer to use the unseasoned funds from a different bank account. Once I’m clear to close, can I use the unseasoned funds? I still have the seasoned funds, but would rather not mess with them as they are part of my retirement fund.
    It’s not a question of whether I have enough funds, which luckily I do, it’s whether they have to be from the seasoned sourced account.

  55. Colin Robertson February 4, 2015 at 12:32 pm -

    If funds aren’t seasoned, they could potentially be an undisclosed gift or a loan or something else that might not fit the underwriting guidelines. But your broker/lender should be able to structure the deal in a way that is optimal for you.

  56. Esteban February 10, 2015 at 8:52 am -

    We were recently pre approved for a 260K mortgage on a new property were we would owner occupy the first floor unit of a double. We currently own a single family that we will be listing within a month. We owe 130K on that property. We are now 2 weeks into the process with inspections on the new property complete. However now the lender is asking for 18 months of reserves? Are reserves as simple as (2) monthly mortgage payments * 18 months? Also, isn’t that an extremely large reserve requirement?

  57. Colin Robertson February 10, 2015 at 10:43 am -

    Esteban,

    It’s not uncommon for a lender to ask for that many months of reserves if you have multiple financed properties and if you’ve got limited equity in the existing property. Ultimately they want to know that you’ll be able to handle both mortgage payments for a while in case anything goes wrong with your finances. The reserves might be structured where you need X months for your current property and X months for the new property. Ask the lender for specifics.

  58. sharon February 16, 2015 at 12:58 pm -

    Colin,

    We are being asked at the last minute for reserves of 6 months on the property we are moving into as well as 6 months of reserves on the property we are moving from (even though we have a signed lease agreement…we have 3 other rental properties and plan to use the home we are moving from as a rental property). First question, with our good credit and payment history why are we being asked for 6 months rather than 2 months worth of reserves? Second question, we are only short about $3,000; I have a credit card that has a $30,000 limit and offers 0% interest for 12 months on credit card checks. Can I write a credit card check to myself and deposit that into my account for the purpose of reserve cash?

  59. Colin Robertson February 16, 2015 at 6:22 pm -

    Sharon,

    Probably need six months because you have less than 30% equity in current principal residence. Best to speak to your broker/loan officer about how to come up with the necessary reserves; personal unsecured loans are generally unacceptable.

  60. Sal March 1, 2015 at 9:21 am -

    Would a HELOC on our primary residence be allowed as reserves for an investment property?

  61. Colin Robertson March 2, 2015 at 1:11 pm -

    Sal,

    Secured borrowed funds like HELOCs are generally acceptable for reserves, but check with your lender to be sure.

  62. David March 11, 2015 at 11:38 am -

    Colin, we are buying a newly constructed, single family home, priced $195,000, and putting down $70,000. This loan will be in lieu of a bridge loan until our present home sells, no mortgage and Realtor valued at approximately $141,000. The builder offers $3,000 towards closing if we use their mortgage company, Pulte Mortgage, hence our considering a 30-year mortgage over a 1-year bridge loan from a local lender. Our credit score is 805. We have combined gross incomes of $76,000 annually, from pensions and social security. This covers our present expenses and some savings. In addition, we have $163,000 in IRAs and $35,000 in a 457 account. Our bank accounts, checking and personal savings, total $119,00, in anticipation of buying and selling expenses on the two homes. I moved $46,000 from my traditional IRA on December 30,2014, into our checking account. This was done to have enough liquid savings to fund our down payment, closing costs, and home upgrade expenses on the two homes. In order to track this transfer, I have furnished records of the movement from my IRA into our checking account. I intend to close the remaining traditional IRA, $45,000, as soon as Pulte Mortgage issues final approval of our loan. I will pay estimated taxes on this money and leave the rest in our checking account to further fund our upgrade and moving expenses. Pulte has now required over $8,000 in ASSET RESERVES. This seems to represent six monthly payments on the new mortgage loan. We are not very familiar with this terminology, not understanding if this means an escrow account or a letter confirming we have the funds. With our 36% down payment , no other debt, and above described financial condition, we are willing to walk away from this loan option over the $8,000. We don’t feel Pulte is incurring enough risk to justify the additional request. What is your opinion on this matter?

  63. Colin Robertson March 11, 2015 at 3:34 pm -

    David,

    It sounds like they are just asking for proof of reserves (common request), meaning documentation that you have that amount of cash on hand.

  64. Jay Hynz March 12, 2015 at 4:15 pm -

    My loan officer is asking for $2000 more in reserves. He initially told me that I only needed $3800 to close. Is this the underwriter’s recommendation? Can I apply for a loan from my bank to cover the reserves?

    I do have a check that I am hesitating to deposit for a totaled car towards the reserves plus two gift letters. would that sufficient enough?

  65. Colin Robertson March 12, 2015 at 5:30 pm -

    Jay,

    Probably best to ask your loan officer why you need more and what will be sufficient to cover it.

  66. Dom March 13, 2015 at 5:58 am -

    Hi Collin

    I have 800k deposit on a 2.2m house, the house was purchased 2 years ago in its pre construction stage, I also have 700k reserves (stocks included)

    My loan is 1.4m and pre approved

    During those 2 years my business income has declined significantly but i can still afford loan payments. Im sure this will bring alarm bells to the underwriter.

    Will this be a problem with the bank in the final stage of loan approval?

  67. Ramon frias March 15, 2015 at 4:22 pm -

    Colin,

    You stated that in 1-2 unit homes with theFHA loans, do not require any reserves correct?

    My lender pre-approved me with a credit score of 640, with only $3,500 cash to close. Now they have, a month before closing have required me to have 3 months in reserve. Why would they require this with an FHA loan?

    I know the more obvious thing to do is speak to my lender, but they have been horrible at responding & overall communication. Your input would be highly appreciated.

  68. Colin Robertson March 16, 2015 at 9:20 am -

    Ramon,

    That’s a HUD guideline. It could be that your credit is low or reserves are needed as a compensating factor. Best to ask the lender…they should get back to you!

  69. Colin Robertson March 16, 2015 at 9:40 am -

    Dom,

    It could be, best to speak with your loan officer/broker. They might ask for a letter of explanation if your income has really tanked to better understand why.

  70. Jane Grayson March 28, 2015 at 8:19 am -

    Thank you for this great source of information regarding loans. I have been “pounding the pavement” for a loan, not realizing how many problems there were, until I came up to it with a lender. This is investment property. And lenders stopped at the first one they came to. First was the LTV. That is difficult if you do not agree with the estimated value of the property. For me, that improved over time. The real problems for me is debt/income ratio and the reserve that has been requested. Up through 2013, my ratio was well over 60%. There had been some maintenance that needed attention and this became part of a negative balance regarding income from the property. In 2014, there is still a small negative income for two units due to my current mortgage situation. I have a private second mortgage that I wish to pay off. I can improve my ratio, if I can refinance my first and second plus pay off a credit card balance, down to 46%. This could still cause a problem and time may also help here . But the real problem is the reserve. After all my calculations with PIT, etc., on a possible scenario, I come up with approximately $1800. The requested reserve is six times, which comes to $10,800. You need to believe that if I could come up with that kind of money, I would not need to refinance. And what is most interesting is that consistent good credit scores do not impact this requirement. My score is over 700, maybe 720, and this has been an on going score over a number of years. If you know of any way that this requirement can be mitigated, I would appreciate the information.

  71. Colin Robertson March 30, 2015 at 10:43 am -

    Jane,

    Perhaps shop around and speak to brokers to see if any lenders out there require fewer reserves based on your situation. Sadly good credit doesn’t replace the need for reserves when you own multiple leveraged properties.

  72. Dan April 1, 2015 at 9:56 pm -

    I’m trying to buy a duplex (or triplex) as an owner occupied property with a minimal(5%) down payment. I have good credit (780) and was quickly approved by my credit union, but they came back and said that the reserve requirement would be six months of monthly payments. I live in the rural Midwest and we’re talking $4200 in reserves after a $5000 down payment. Is this universal or maybe just a quirk of my credit union’s? Also, I understand that an FHA loan would only require three months in reserve, should that be something for me to consider or are there significant drawbacks? It doesn’t make sense to me that even though I’ll be living there this is still treated strictly as an investment property.

  73. Colin Robertson April 2, 2015 at 11:56 am -

    Dan,

    If you intend to live there as your primary residence, it should be treated as a primary residence, not an investment property. Reserve requirements may vary from bank to bank, but Fannie Mae requirements call for 6 months reserves on 2-4 unit properties. FHA might require fewer reserves but cost you more (reserves are just reserves, not actual money being spent).

  74. Mrs. Houston April 12, 2015 at 10:38 am -

    Hi! I have a question. I would like to know if we would need an cash reserve for an FHA loan that we were preapproved for? We have $5,000 down payment assistance, seller will pay all the closing cost and warranty. Taxes and insurance will be including in our mortgage payments. I was never told upfront about cash reserves…but the loan officer stressed that we save as much as possible. I was told by our real estate agent that when it comes down to it, we may need only about $2,000 to contribute to inspection, escrow, and appraisal. We won’t get back much of the money because of the program our loan officer signed us up for. Anywho, do you think we will need much in the bank? The loan officer said there’s no specific amount needed, just have something in the bank and now I am scared because after paying for the escrow and inspection, I doubt that we will have anything left in savings. We just started saving and only saved what we needed to have by closing. So what do you think? This is a house, primary residence, and just one unit. We shouldn’t need any reserves, but who knows what the bank will say!?!

  75. Colin Robertson April 12, 2015 at 6:35 pm -

    Hi Mrs. Houston,

    Best yo ask your loan officer what the reserve requirement is. It’s possible they may be needed if the loan was manually underwritten.

  76. Chuck Ulbrich April 14, 2015 at 3:43 pm -

    Quick question from a first time home buyer. We are in contract on primary home in contract for $194,400. It’s a conventional loan with 5% down and seller concessions of
    $5700. About a week ago we received an updated GFE and it had our out of pocket costs at closing down from the original GFE of $6308 to $4512. Today I was asked by the lender to verify liquid assets of $10,321.15. They said they already verified $6305 and now need to verify an additional $4015 for funds to close. Do you think this is what we will need for the close or is this just to make sure we have reserve funds beyond the close. I’m baffled as to how the GFE could be so far off.

  77. Colin Robertson April 14, 2015 at 8:41 pm -

    Chuck,

    If you don’t understand why that number changed, ask so you know. Reserves mean the money is in one of your accounts, not that it’s being spent.

  78. Jane Grayson April 16, 2015 at 9:44 am -

    Hi Colin,

    Your answer to my situation was not unexpected and I have decided to do a little(!) research on Why/How? this requirement has been put into place. My trip led me to the Federal Reserve Board which then pointed into other directions. I have only touched the surface and will continue to plod through the internet in search of answers. In my search I DID go back to the Fed. Board and found they are looking for people interested in being on their Advisory Council that impacts consumers. If anyone is interested, just Google Federal Reserve and on the site he/she will find a reference to it.

    Jane Grayson

  79. Tony April 19, 2015 at 7:05 am -

    Hi Colin,

    This is some good info, but I had a question. First time home buyer here, and we were pre-approved for a community works mortgage through HSBC.

    On the preapproval it says “Provide documentation to verify funds have been liquidated in the amount of $7000″. Are they asking for a reserve with that wording or just that we have the money on hand for the closing and down payment?

    The home will be about 240k with 9-10% down on our part. The mortgage estimate will be about $1800 a month. I have a pension (public school) and a life insurance policy (through the school). Not vested in either one however. They will not take any of the monies in these accounts I take it?

    Just really confused with this reserve stuff and worried we might not meet their requirements and it might kill our chances of the loan. Any help would be greatly appreciated :-)

  80. Caliblu83 April 20, 2015 at 9:36 am -

    I have applied for an FHA loan, and I am receiving down payment assistance. I have my .5% down payment and I am getting a 3% seller credit and subordinate financing to cover closing costs. On my GFE my estimated contribution at closing was -$43.00. Here is my question, I only have a total of $3000.00. I had gone into contract one month prior to this current one and $1000.00 was withdrawn for that escrow, then returned when I canceled the contract. At that time I also paid for my inspections, so that was a $400.00 unrecovered loss. Now that I am in escrow again the $1000.00 was again withdrawn, and I have paid another $250.00 for inspections, leaving me with $1750.00 between my checking and savings account out of my original $3000.00. When this goes to the underwriter for approval, will they question why the $1000.00 went in/out/in/out? If they were to look at my checking right now today it is obviously low because of the recent escrow activity- but my loan officer knew going in I only had a specific amount of money- also, I want to confirm that asset verification includes the verification that I am getting down payment assistance and seller credit.

  81. Colin Robertson April 20, 2015 at 4:13 pm -

    Caliblu,

    They should be able to see the paper trail of the money going out and coming back in and why that happened. The underwriter should be aware that you’re getting the DPA and seller credit.

  82. Colin Robertson April 20, 2015 at 4:23 pm -

    Tony,

    Generally assets need to be liquid aka readily accessible to be used for reserves. Best to speak with your loan officer about specific amount needed and where it can be sourced from to meet the requirement of the bank/lender you’re working with. Good luck.

  83. Dwayne April 21, 2015 at 8:28 pm -

    Ive received preapproval for a home loan, and am providing all the necessary information ex. Pay check stubs, W-2’s etc in preparation for the closing.
    I have an IRA and funds from a joint savings account that I have with my mother. Can I use both for to show seasoned funds? I’ve had both for years.

  84. Colin Robertson April 22, 2015 at 8:36 am -

    Dwayne,

    They should be acceptable, though the IRA may be discounted to account for penalties/taxes and the joint account may require a letter that you have access to 100% of the account balance.

  85. Lori April 23, 2015 at 6:57 am -

    Hi,
    My partner of 14 years and I are splitting up. We have one child. As part of our settlement, he will be giving me $50k toward the purchase of a home, and $2000 in monthly support.
    My personal income averages 5k per month, and credit score is around 750. I’ve never had much of a savings because we had always planned on his retirement, so mine is under 20k.

    I have very little debt, and we also own a company together which is established since 2005, and annual revenue of 800k. I do have verifiable w-2 income from my salary.

    What advice would you have for my qualifying for a home in the $250 k range?

  86. Colin Robertson April 23, 2015 at 9:54 am -

    Hi Lori,

    Best thing you can do is get pre-approved to see where you stand and determine if there’s anything that might be perceived as a red flag to the lender. But great credit, steady income, and some assets and low debt is a good start.

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