Hello all.... I am in the process of building a new home. I am about 3 months away from completion, have the funds for my down payment, closing, and a large portion for reserves. Here is my challenge....
I own an existing home with my younger sister. She is the "primary" borrower on MY current house as of February, as she will be taking over the mortgage payments once my new house is complete. She can afford it, but at the time we refinanced, she had not been out of school and in the work force long enough to qualify on her own.... hence, I am a co-borrower on MY house 
My new home will be MY primary residence, and my sister is planning on refinancing me out of the existing home in a year.... so I do need to meet credit/DTI standards, which I do. My big "unknown" at this moment is the reserves. And this unknown is starting to give me an ulcer I swear
Has anyone been in a position where they are a co-signer on an existing home with someone who will not "rent" the home, but rather reside as a co-owner.... and purchased a new home as your primary residence? Did you run into issues with reserve requirements? Right now I'm sitting on 6 months of PITI for the co-signed existing home + 2 months PITI for the new home. But I fear I'm going to fall short 
Any information would be helpful as I'm trying to figure out what I might need and of course until the financing is in the works I won't know for SURE!!
Thanks!!
I have a home in another state that I have a renter in. I was told that since there was more than 70% still owed on the home that I had to have 6 months of reserves in my account at time of closing.
Starting Score: 689No, only for the rental. I haven't closed yet. I doubt I will come up with it based on how much I'm putting down for my house. I will most likely show them the statement for an upcoming pay day and ask that they accept that. We will see.
@ShanetheMortgageMan wrote:You can review Fannie Mae's (Freddie Mac also follows the same) guidelines on reserve requirements at: https://www.fanniemae.com/content/guide/selling/b3/4.1/01.html#Principal.20Residence
It says:
If the borrower’s current principal residence is pending sale or converting to a second home or investment property, the following additional reserves (PITIA) must be calculated and documented:
If the percentage of equity in the current principal residence is… Then additional reserves (in addition to those required by DU or the Eligibility Matrix) are…
30% or more 2 months on subject property and
2 months on current principal residence
Less than 30% 6 months on subject property and
6 months on current principal residence
How much do you owe on your mortgage, and how much do you think it'd appraise for?
Keep in mind, if you are purchasing with FHA financing then there are no reserve requirements. The above is only a Fannie Mae/Freddie Mac thing.
I'd be lucky if I had 5% equity in the home at this point. I co-signed for my sister to purchase MY existing home. She is the primary, I am a co-signer. We just refinanced in this manner in February and I barely had 4% equity in the home then. It was financed FHA.
The new home will have 10% down, and will be financed to the max conventional limit in MN ($417,000). The loan on the home will be $416,500 and we are anticipating the appraisal to come in right around $495-$500,000 thanks to the long build time and rising prices of new construction in MN. Suppose that doesn't help me with reserves though
So if I am reading this correctly, even though I am only a "co-signer" on the existing mortgage, and not the primary borrower, because there is less than 30% equity in the home I will still have to come up with 6 months PITI for reserves AND 6 months PITI for the new house as well? So basically I have to come up with a year's worth of house payments
@ShanetheMortgageMan wrote:It sounds like you are using Fannie or Freddie financing, so yes you'd be subject to needing 6 months PITI on both the new + existing property since you don't have 30% equity. No exception to it if you are just a co-signer, as it's your primary residence too.
60% of vested balances in retirement accounts can be used towards reserves, not sure if you were including those in your calculation (or if you have any retirement).
So I have been told that I will only need two months of reserves on the new home, not six..... something to do with my sister's purchase (refinance) of the existing house to "buy me out" in the next 11 months.
This whole thing confuses the heck out of me! Someone in my situation actually has to come up with more in reserves than they do for a down payment
Do you know what the rules are aroung gift funds and reserves? I was told that reserves couldn't be "gifted".... do you know if that's true? Otherwise I'm going to be scrambling over the next 10 weeks to come up with another 4 months of payments!!
@Barneygirl wrote:
@ShanetheMortgageMan wrote:It sounds like you are using Fannie or Freddie financing, so yes you'd be subject to needing 6 months PITI on both the new + existing property since you don't have 30% equity. No exception to it if you are just a co-signer, as it's your primary residence too.
60% of vested balances in retirement accounts can be used towards reserves, not sure if you were including those in your calculation (or if you have any retirement).
So I have been told that I will only need two months of reserves on the new home, not six..... something to do with my sister's purchase (refinance) of the existing house to "buy me out" in the next 11 months.
This whole thing confuses the heck out of me!
Do you know what the rules are aroung gift funds and reserves? I was told that reserves couldn't be "gifted".... do you know if that's true? Otherwise I'm going to be scrambling over the next 10 weeks to come up with another 4 months of payments!!
Hey Shane,
I've been reading the document to the link you sent, and am curious about something..... since I will already have a "primary" residence (current co-signed home with my sister) ...wouldn't my new house be considered a "second home"? And wouldn't that put me into the section below.....
-------------------------------------------
Second Home or Investment Property
For a mortgage loan secured by a second home or an investment property, the minimum reserve requirements are determined as follows:
for loan casefiles submitted to DU, per DU;
for manually underwritten loans, per the Eligibility Matrix.
If the borrower owns other financed properties, the following additional reserves must be calculated and documented. The required reserves for a financed property are based on the qualifying payment amount of the financed property.
If the total number of financed properties is… Then additional reserves (in addition to those required by DU or the Eligibility Matrix) are…
| 1 to 4 financed properties | 2 months for each second home or investment property |
| 5 to 10 financed properties | 6 months for each second home or investment property |