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FHA Cash reserves

Established Member

FHA Cash reserves

Are lenders requiring cash reserves for FHA loans? We are going through Sovereign Bank and I don't have a good understanding of any overlays they use in addition to FHA minimums. If yes, what factors contribute to need for a cash reserve? 

Message 1 of 12
11 REPLIES
Contributor

Re: FHA Cash reserves

What type of property? Single family?

 

I know on multi-family properties (3-4), you're required to have at least 3 months of PITI reserves.

Message 2 of 12
Frequent Contributor

Re: FHA Cash reserves

USAA told me this can be in the form of a CD, is this correct?

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Message 3 of 12
Regular Contributor

Re: FHA Cash reserves

My 401K is acceptable.

Message 4 of 12
Established Contributor

Re: FHA Cash reserves

FHA does not require reserves, but I think it's very common (depending on the other factors of your credit profile) for lenders to require reserves with FHA loans.

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July 2017 Current Scores: Approx 710 (waiting for official updates)
Message 5 of 12
Contributor

Re: FHA Cash reserves


Nathan326 wrote:

Are lenders requiring cash reserves for FHA loans? We are going through Sovereign Bank and I don't have a good understanding of any overlays they use in addition to FHA minimums. If yes, what factors contribute to need for a cash reserve? 


My lender asked about our reserves and wanted to see bank statements verifying the funds were still there and that we hadn't spent any. Part of our reserves was cash in a savings account and part of it was in a 401k. I believe the cash needs to be at least the 3.5% FHA downpayment amount of the loan. So say you are buying a home for 200k, you need to have at least 7k in an account somewhere and this account needs to hold these funds for at least 3 months. If you touch the money, whether it be adding to it or taking from it, that will mess up your underwriting completely and could potentially prevent you from getting the home in the time frame you would like to. Every lender is different though, some may not be as strict as others. Ask around and go with the one who provides the best and most flexible option for your situation.
Message 6 of 12
Established Member

Re: FHA Cash reserves

Was there something unique about your situation or was that the norm for your lender?
Message 7 of 12
Contributor

Re: FHA Cash reserves


Nathan326 wrote:
Was there something unique about your situation or was that the norm for your lender?
That was the norm for this particular lender. We were going to go with another lender because they were easier with their requirements but they were unable to get the builder incentives to transfer over. That's why we stuck with the builders lender.
Message 8 of 12
Senior Contributor

Re: FHA Cash reserves


creditisbetter2 wrote:

Nathan326 wrote:

Are lenders requiring cash reserves for FHA loans? We are going through Sovereign Bank and I don't have a good understanding of any overlays they use in addition to FHA minimums. If yes, what factors contribute to need for a cash reserve? 


My lender asked about our reserves and wanted to see bank statements verifying the funds were still there and that we hadn't spent any. Part of our reserves was cash in a savings account and part of it was in a 401k. I believe the cash needs to be at least the 3.5% FHA downpayment amount of the loan. So say you are buying a home for 200k, you need to have at least 7k in an account somewhere and this account needs to hold these funds for at least 3 months. If you touch the money, whether it be adding to it or taking from it, that will mess up your underwriting completely and could potentially prevent you from getting the home in the time frame you would like to. Every lender is different though, some may not be as strict as others. Ask around and go with the one who provides the best and most flexible option for your situation.

Why would adding to your savings account cause a problem?  I've been regularly adding to my account throughout my loan process and it has not caused any issues with UW.  Maybe I shouldn't speak too soon as we don't close until April 26th, but I can't see how adding to your account would be an issue unless there was a problem with sourcing the funds.  Even then, if it is in excess of what you need, can't they run the numbers ignoring the non-sourced funds? 


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Message 9 of 12
Established Member

Re: FHA Cash reserves


Walt_K wrote:

creditisbetter2 wrote:

Nathan326 wrote:

Are lenders requiring cash reserves for FHA loans? We are going through Sovereign Bank and I don't have a good understanding of any overlays they use in addition to FHA minimums. If yes, what factors contribute to need for a cash reserve? 


My lender asked about our reserves and wanted to see bank statements verifying the funds were still there and that we hadn't spent any. Part of our reserves was cash in a savings account and part of it was in a 401k. I believe the cash needs to be at least the 3.5% FHA downpayment amount of the loan. So say you are buying a home for 200k, you need to have at least 7k in an account somewhere and this account needs to hold these funds for at least 3 months. If you touch the money, whether it be adding to it or taking from it, that will mess up your underwriting completely and could potentially prevent you from getting the home in the time frame you would like to. Every lender is different though, some may not be as strict as others. Ask around and go with the one who provides the best and most flexible option for your situation.

Why would adding to your savings account cause a problem?  I've been regularly adding to my account throughout my loan process and it has not caused any issues with UW.  Maybe I shouldn't speak too soon as we don't close until April 26th, but I can't see how adding to your account would be an issue unless there was a problem with sourcing the funds.  Even then, if it is in excess of what you need, can't they run the numbers ignoring the non-sourced funds? 


I hope adding to our savings account isn't a problem. My wife and I are transferring money from our paychecks each week to continue to build the account as we approach closing. The funds can easily be traced back to our paychecks. It's almost as if damned if you do and damned if you don't. 

Message 10 of 12