Reserve Amounts: Savings vs Roth account

[Jazzzy]

I understand that to qualify for a mortgage we will have to have some cash in reserve. We have put a lot of cash into our Roth accounts (had an employer where we could put the entire 401k amount directly into Roth). We have maximized that opportunity and now have a couple hundred thousand in Roth, but barely any in "savings."

I am 63 y/o and able to take my Roth contributions out...so we have counted that as our savings, but have never had to tap it.

In applying for a new mortgage, will money in retirement accounts count as reserves...or should we get some into a savings account? It fulfills the same purpose for us, but I don't know how mortgage lenders will look at it.

Thanks...

[edcampbell613]

Usually retirement accounts are tough to use as reserves,

But at your age these funds should be more "liquid" making it easier to access.

Also depending on credit you might not need as much as you think.

[sadiespapa]

My lender was able to consider 60% of my IRA balance as reserves. 

[Jazzzy]

ed & sadiespapa...thanks for the replies. Even though our Roth money IS our savings, I didn't know if some of it should be separate.

Ugh...so many nuances to this mortage process!

[ShanetheMortgageMan]

For FHA, retirement accounts (IRA/401k/SEP/Keogh) which you can access at the time you are qualfying can be used at 60% of the vested balance after any funds are withdrawn.

For conventional it's also 60%, unless you are 59.5 years old, then you get an extra 10% for a total of 70% of the vested balance (because there usually is no early withdraw penalty).

So if you have $100k in the account, are taking out $20k of it for the down payment &/or closing costs, and you have $80k left... then it'd count as $48,000 in reserves (at 60%).  You also get full credit for the $20k in that situation.

To prove you can access the funds, the terms of which you can access the funds (via withdraw or loan) are required.

[Jazzzy]

Shane, thanks so much for that explanation. At least I can go into a mortgage knowing I don't have to worry abour reserves!

[ShanetheMortgageMan]

Heh, yes true that, you will have more than enough.