I just want to confirm this...I've spoken with three LO's so far. The first told me that we would need two months' mortgage payments in reserves for our FHA loan. I'm not working with him any longer, but I was assuming any lender was going to have this requirement. The LO I'm currently working with has been very thorough and detailed so far, from what I can tell, but nothing has come up about reserves. I've been paranoid about this because we're looking at buying a little earlier than we had planned and don't have as much saved up as we would have. We do have a down payment, but not enough left for reserves. So I'm going to call him later today, but I decided to do a search on it, and it looks like FHA doesn't have the reserve requirement. That would be great. We have a little available in a 401k (that I obviously want to leave alone if at all possible), credit cards with zero balances, and some money coming in soon after our hypothetical closing, so the emergency funds will be there...just not in the form the first LO would have wanted.
Thanks for any input!
I believe this is a lender and not an FHA thing, but the FHA rules changed somewhat last year and have changed a bit since I got my loan, so I could be wrong.
We DID have to have reserves, but only because I was the only one on the loan (DH's credit isn't so hot) and the 2 months + reserves was a compensating factor.
What I did while going through the process was to read everything I could on the FHA site, asked a lot of questions here, and made sure the LO knew I knew my stuff. I know one of our resident experts will chime in soon, but hope this helps in the meantime.
FHA loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration. Federally qualified lenders may issue the loan.
FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. The government subsidized some FHA programs, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers.
Over time, private mortgage insurance companies came into play, and now FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI.
edited to remove link
Also, if reserves were expected, would this be apparent on the GFE? There's nothing there about it, but I wasn't sure if that meant anything or not.
If reserves are expected, they will just that: reserves -- not expected as 'at-the-table' money during closing, and thus not part of the GFE.
A recent anecdote: my lender re-checked my bank account balances to calculate a 2-month average immediately prior to approving my close late last month. I was told the check was to assure money available for close and first-month expenses (aka, a reserve).
I spoke with my LO this morning and he said he doesn't think reserves will be necessary, but that they can't hurt. So I'm going to send him my 401K balance. And then we're just going to keep putting money in savings as we can, and our bank statements should look pretty good if they check those again before closing.
Thanks for the input...keep it coming!