Reserve requirements can vary greatly from lender to lender.
- Review two months of bank statements to
determine a seasoned balance. - Calculate your reserves based on the
criteria below.
Reserve requirements can vary greatly from lender to lender.
Most lenders will want you to have some money left in reserve after the purchase.
Depending on the lender and the loan program, reserve requirements are based on one of three criteria:
Whichever of the three criteria the lender is using, you will be required to have a certain number of months of that amount in reserve. Lenders will only count 70% of the value of your retirement assets toward reserves. You may be able to use gift funds to meet the lender reserve requirement.
Reserve requirements can vary greatly from lender to lender. Underwriting standards and requirements often resemble a bell curve. With reserves, that means that on the lenient side there are a few lenders who will require no reserves at all, and on the strict side there are a few who require 12 months of income in reserve. Most lenders are in the middle, and will want you to have two to six months of your total monthly housing expense in reserve after close of escrow. A good mortgage broker can find you a loan program that is flexible on the amount of reserves you will need.
Your reserves are the liquid assets that you have left after your down payment and closing costs. In figuring your reserves, it is important to have your lender give you a detailed estimate of your closing costs early in the transaction.
You may be able to finance a substantial portion of your closing costs by negotiating to have the seller give you a credit for nonrecurring closing costs (loan fees, lender and broker fees, title insurance and escrow fees; generally these are about 70% of total closing costs), in lieu of a price reduction.
For example, you may have had an offer accepted at $693,000 for a home listed for $700,000. With a 10% down payment of $69,300 and total closing costs of $10,000, you would have to come up with about $80,000 to close. If, however, you paid $700,000 for the house and got the seller to credit you $7,000 for the nonrecurring closing costs, you would only need about $73,000 to close. Your mortgage would be about $7,000 higher—you are basically financing your closing costs—but you would not have used up as much of your cash reserves.
