topic Re: Reserves required for mortgage in Mortgage Loans

Reserves required for mortgage

ChrisinKC — Sun, 26 Apr 2015 17:35:56 GMT

Could any of you please let me know what the requires reserves amount was on your home loan? My loan officer told me that reserves amount isn't figured out until pre-approval, and I've been waiting for pre-approval because I've been waiting for my score to be reflective of nearly $14k of debt being paid off in the past few weeks.

I didn't think about needing reserves before having an offer accepted on a new construction house, and I offered when I had $0.00 available to me since I had just paid off that $14,000 in CC debt.

I am supposed to close on the house on June 30, and at that time I will have saved enough for the down payment and the closing costs, but will only have MAYBE around 9k extra after that.

Is it possible to not have any reserve required?

My current FICO mortgage scores are in the 720 - 739 range, but I'm hoping they'll be in the 740+ range after all of the $14,000 debt is reported to each of the bureaus in the next few days. Not sure if the required reserves is based off of the FICO score or not.

Re: Reserves required for mortgage

ezdriver — Sun, 26 Apr 2015 18:46:27 GMT

Reserve requirements can range from three to six months' worth of PITI.

Re: Reserves required for mortgage

ChrisinKC — Sun, 26 Apr 2015 19:04:39 GMT

Thanks for the information.

Are reserves not based on your full monthly obligations as shown on your credit report, or just the mortgage portion?

To add clarity to my question, do I also need 3 - 6 months of reserves for my auto loan payment and any other debt payments like a CC?

Is your score the deciding factor on if it's 3 or 6 months of reserves? With a 720 - 739 score, would that be 3 or 6 months? Same question for scores of 740+.

I don't remember this being an issues on the house I financed a couple of years ago, but my scores were 740+ at that time.

Re: Reserves required for mortgage

Lemmus — Sun, 26 Apr 2015 23:41:33 GMT

https://www.fanniemae.com/content/guide/selling/b3/4.1/01.html

...most loans will follow these guidelines ...in your case thats 6 mts of PITI ...has nothing to do with scores or other debt payments ...hth

Re: Reserves required for mortgage

frugalQ — Mon, 27 Apr 2015 02:21:04 GMT

Under normal circumstances, it's 2 months reserves if you do not have any other properties. Lenders sometimes have their own overlays where you must have a minimum 3-6 months reserves.

If you have a second home or investment property, it's usually 6 months for each property (including the home you are purchasing). Their are variations depending on the amount of equity you have in the properties, but the general rule is 6 months for each property....see lemmus' link.

Reserves are considered the monthly mortgage Payment only (PITI) and does not include any other debts. Neither is it credit score dependent.

Re: Reserves required for mortgage

Anonymous — Mon, 27 Apr 2015 02:25:24 GMT

We had to have our down payment in the bank first. I made sure it was transferred & seasoned to make things go smoothly. Then it was 3 month of reserves here in FL.

Re: Reserves required for mortgage

frugalQ — Mon, 27 Apr 2015 02:30:25 GMT

If you have to go through manual underwriting, there is a credit score component...

https://www.fanniemae.com/content/eligibility_information/eligibility-matrix.pdf

Re: Reserves required for mortgage

ChrisinKC — Mon, 27 Apr 2015 02:58:21 GMT

Thanks for the information.

I have not yet asked my loan officer to run my credit because I've recently paid off most of my revolving credit card debt, and I'm waiting for the new balances to be reported to the credit bureaus.

My loan officer has sent me a spreadsheet that shows what all of the closing costs would be, along with what my APR would be and my monthly payment. He's using the scores that I provided to him from FICO to base my APR on until he runs my credit.

My question is, on the spreadsheet he provided, there's a section called "Reserve and Prorated Items". Within that section, there are amounts for the following:

Hazard Insurance Reserve
City/County Real Estate Tax Reserve

For each of those items, they're asking for 3 months.

In the "Prepaid" section of the same spreadsheet, they're asking for 12 months of Hazard Insurance Premium.

Would you assume that the items listed in the "Reserve and Prorated Items" are for the reserve, and I wouldn't need to have ANOTHER 3 months of those items for reserve? I'm confused about that because when I heard about reserve, I didn't think that I actually needed to PAY for the reserve, but rather just have a reserve amount available at closing, but the spreadsheet sent to me is requiring that I actually have to pay those 3 month reserve amounts. What's even more interesting is that there's no mention of P&I reserves in the spreadsheet.

@frugalQ wrote:
Under normal circumstances, it's 2 months reserves if you do not have any other properties. Lenders sometimes have their own overlays where you must have a minimum 3-6 months reserves.

If you have a second home or investment property, it's usually 6 months for each property (including the home you are purchasing). Their are variations depending on the amount of equity you have in the properties, but the general rule is 6 months for each property....see lemmus' link.

Reserves are considered the monthly mortgage Payment only (PITI) and does not include any other debts. Neither is it credit score dependent.

Re: Reserves required for mortgage

ChrisinKC — Mon, 27 Apr 2015 02:59:42 GMT

@frugalQ wrote:
If you have to go through manual underwriting, there is a credit score component...

https://www.fanniemae.com/content/eligibility_information/eligibility-matrix.pdf

What would make someone to have to go through manual underwriting? I assumed it was because of a low score to begin with.

Re: Reserves required for mortgage

ChrisinKC — Mon, 27 Apr 2015 03:01:17 GMT

Thanks for your response. What do you mean by "seasoned"?

@Anonymous wrote:
We had to have our down payment in the bank first. I made sure it was transferred & seasoned to make things go smoothly. Then it was 3 month of reserves here in FL.

Re: Reserves required for mortgage

frugalQ — Mon, 27 Apr 2015 03:39:12 GMT

Prepaids and reserves on a closing cost spreadsheet is different than the liquid reserves we are talking about.

For closing purposes, you must prepay your 1st year homeowners insurance upfront. Then, in your case, you are required to have 3 months of taxes and homeowners insurance in your escrow account so when it's time to pay taxes and pay for your homeowners ins renewal, you will have the funds in your escrow account. the mortgage company is required to pay the taxes and insurance on your behalf...it's not something that you are responsible for paying. We normally don't differentiate between the two and just call them all prepaids.

The reserve which we have previously been referring to is the amount of funds you need to have available in case you run into financial trouble...you have 3-6 months worth of funds available to pay your mortgage. It's theoretical in the sense that you can spend those "reserved funds" immediately after you close.

Re: Reserves required for mortgage

ChrisinKC — Mon, 27 Apr 2015 03:55:32 GMT

Well, that stinks.

So really I need to have 18 months of Home Owner's insurance (12 + 3 + 3 reserve), 6 months of Propety Taxes (3 + 3 reserve), plus at least 3 months of P&I reserve in my bank account at the time of closing, in addition to my closing costs and my deposit.

That's not gonna happen, as every single penny I have is currently being saved for covering just the deposit and closing costs. Guess I'll need to forfeit my non-refundable deposit to the builder and walk away.

Has anyone here done that?

@frugalQ wrote:
Prepaids and reserves on a closing cost spreadsheet is different than the liquid reserves we are talking about.

For closing purposes, you must prepay your 1st year homeowners insurance upfront. Then, in your case, you are required to have 3 months of taxes and homeowners insurance in your escrow account so when it's time to pay taxes and pay for your homeowners ins renewal, you will have the funds in your escrow account. the mortgage company is required to pay the taxes and insurance on your behalf...it's not something that you are responsible for paying. We normally don't differentiate between the two and just call them all prepaids.

The reserve which we have previously been referring to is the amount of funds you need to have available in case you run into financial trouble...you have 3-6 months worth of funds available to pay your mortgage. It's theoretical in the sense that you can spend those "reserved funds" immediately after you close.

Re: Reserves required for mortgage

Lemmus — Mon, 27 Apr 2015 10:14:24 GMT

@ChrisinKC wrote:
Well, that stinks.

So really I need to have 18 months of Home Owner's insurance (12 + 3 + 3 reserve), 6 months of Propety Taxes (3 + 3 reserve), plus at least 3 months of P&I reserve in my bank account at the time of closing, in addition to my closing costs and my deposit.

That's not gonna happen, as every single penny I have is currently being saved for covering just the deposit and closing costs. Guess I'll need to forfeit my non-refundable deposit to the builder and walk away.

Has anyone here done that?
@frugalQ wrote:
Prepaids and reserves on a closing cost spreadsheet is different than the liquid reserves we are talking about.

For closing purposes, you must prepay your 1st year homeowners insurance upfront. Then, in your case, you are required to have 3 months of taxes and homeowners insurance in your escrow account so when it's time to pay taxes and pay for your homeowners ins renewal, you will have the funds in your escrow account. the mortgage company is required to pay the taxes and insurance on your behalf...it's not something that you are responsible for paying. We normally don't differentiate between the two and just call them all prepaids.

The reserve which we have previously been referring to is the amount of funds you need to have available in case you run into financial trouble...you have 3-6 months worth of funds available to pay your mortgage. It's theoretical in the sense that you can spend those "reserved funds" immediately after you close.

...you are misreading what has been said

1) you need the down payment, which is paid at closing, but you must demonstrate that you have well before closing

2) you need prepaids which are generally contract deposit, lender fee(s), inspection, appraisal, and one year homeowner insurance ...this can vary from lender to lender but are normally paid at timepoints between contract acceptance and closing

3) you need all "other" closing costs which includes as yet unpaid loan fees, costs and escrows ...in your case escrows will apparently include 3 mts homeowners insurance and 3 mts property taxes ...the closing costs (including escrows) vary from state to state

4) you need 3-6 mts of PITI in liquid assets in addition to 1/2/3 above ...you do not pay these to anyone ...you just have to demonstrate at closing that they are available

...all of these costs are detailed on documents your lender must provide to you, generally twice during the mortgage process, once as a GFE (good faith estimate) and once as a HUD-1 form after underwriting is complete and before closing (assuming you are using a govt guaranteed loan) ...the document names sometimes vary but are always there in every mortgage transaction ...you need to go over this document in detail with your Loan Officer to ensure you understand both the amount and when it will be necessary for you to either demonstrate availability or actually pay

...I see nothing in the info you have provided that will prevent you from meeting these requirements ...hth

Re: Reserves required for mortgage

ezdriver — Mon, 27 Apr 2015 12:33:40 GMT

@ChrisinKC wrote:
Thanks for the information.

Are reserves not based on your full monthly obligations as shown on your credit report, or just the mortgage portion? Just your housing payment. The lender only cares that your monthly housing payment [PITI] is made ontime. The lender does not care if you cannot make your auto loan payment.

To add clarity to my question, do I also need 3 - 6 months of reserves for my auto loan payment and any other debt payments like a CC? No.

Is your score the deciding factor on if it's 3 or 6 months of reserves? With a 720 - 739 score, would that be 3 or 6 months? Same question for scores of 740+. Reserve [aka "rainy day" funds] are not related to scores ... it is simply a lender requirement.

I don't remember this being an issues on the house I financed a couple of years ago, but my scores were 740+ at that time. You also had reserve requirements then but it is not an issue if your bank statements show that you had sufficient "rainy day" funds. It is only an issue when you don't have it.

Re: Reserves required for mortgage

ChrisinKC — Mon, 27 Apr 2015 14:26:59 GMT

@Lemmus wrote:
@ChrisinKC wrote:
Well, that stinks.

So really I need to have 18 months of Home Owner's insurance (12 + 3 + 3 reserve), 6 months of Propety Taxes (3 + 3 reserve), plus at least 3 months of P&I reserve in my bank account at the time of closing, in addition to my closing costs and my deposit.

That's not gonna happen, as every single penny I have is currently being saved for covering just the deposit and closing costs. Guess I'll need to forfeit my non-refundable deposit to the builder and walk away.

Has anyone here done that?
@frugalQ wrote:
Prepaids and reserves on a closing cost spreadsheet is different than the liquid reserves we are talking about.

For closing purposes, you must prepay your 1st year homeowners insurance upfront. Then, in your case, you are required to have 3 months of taxes and homeowners insurance in your escrow account so when it's time to pay taxes and pay for your homeowners ins renewal, you will have the funds in your escrow account. the mortgage company is required to pay the taxes and insurance on your behalf...it's not something that you are responsible for paying. We normally don't differentiate between the two and just call them all prepaids.

The reserve which we have previously been referring to is the amount of funds you need to have available in case you run into financial trouble...you have 3-6 months worth of funds available to pay your mortgage. It's theoretical in the sense that you can spend those "reserved funds" immediately after you close.

...you are misreading what has been said

1) you need the down payment, which is paid at closing, but you must demonstrate that you have well before closing

2) you need prepaids which are generally contract deposit, lender fee(s), inspection, appraisal, and one year homeowner insurance ...this can vary from lender to lender but are normally paid at timepoints between contract acceptance and closing

3) you need all "other" closing costs which includes as yet unpaid loan fees, costs and escrows ...in your case escrows will apparently include 3 mts homeowners insurance and 3 mts property taxes ...the closing costs (including escrows) vary from state to state

4) you need 3-6 mts of PITI in liquid assets in addition to 1/2/3 above ...you do not pay these to anyone ...you just have to demonstrate at closing that they are available

...all of these costs are detailed on documents your lender must provide to you, generally twice during the mortgage process, once as a GFE (good faith estimate) and once as a HUD-1 form after underwriting is complete and before closing (assuming you are using a govt guaranteed loan) ...the document names sometimes vary but are always there in every mortgage transaction ...you need to go over this document in detail with your Loan Officer to ensure you understand both the amount and when it will be necessary for you to either demonstrate availability or actually pay

...I see nothing in the info you have provided that will prevent you from meeting these requirements ...hth

I think we're saying the same thing, you're just more clear in your explaination.

Re: Reserves required for mortgage

ChrisinKC — Mon, 27 Apr 2015 14:32:00 GMT

So I called my loan offcer this morning and found out that more than likely I will not have any reserve requirements. The same loan officer processed my last home loan and said I didn't have any reserve requirements then either.

He did ask me what my scores were and what my DTI was. With my scores (720+) and my DTI (5% without my mortgage payment), he said that it would be very unlikely that there would be any reserve requirements. He said if there were ANY reserve requirements, it would be a max of 2 months of just the mortgage payment.

Feeling much better now :-)

Re: Reserves required for mortgage

frugalQ — Mon, 27 Apr 2015 17:29:45 GMT

great news!

good luck on your new home purchase!!

Re: Reserves required for mortgage

tacpoly — Mon, 27 Apr 2015 19:47:20 GMT

Most lenders do not want to see you moving money around at the last minute. Ideally, you'll have all necessary funds liquid in your accounts, stable for at least 3 months ("seasoned") before you need to access them at closing.

@ChrisinKC wrote:
Thanks for your response. What do you mean by "seasoned"?
@Anonymous wrote:
We had to have our down payment in the bank first. I made sure it was transferred & seasoned to make things go smoothly. Then it was 3 month of reserves here in FL.

Regarding reserves: it has nothing to do with your scores and more to do with lender, as well as co-op/condo, requirements - at least in my market. We were required to show 2 years' reserves and our scores were 800+; and our lender wanted to see cash equivalents for reserves (i.e. no retirement funds).

Re: Reserves required for mortgage

ChrisinKC — Mon, 27 Apr 2015 20:00:21 GMT

Very interesting. Not sure why there's so much difference between markets.

@tacpoly wrote:
Most lenders do not want to see you moving money around at the last minute. Ideally, you'll have all necessary funds liquid in your accounts, stable for at least 3 months ("seasoned") before you need to access them at closing.
@ChrisinKC wrote:
Thanks for your response. What do you mean by "seasoned"?
@Anonymous wrote:
We had to have our down payment in the bank first. I made sure it was transferred & seasoned to make things go smoothly. Then it was 3 month of reserves here in FL.

Regarding reserves: it has nothing to do with your scores and more to do with lender, as well as co-op/condo, requirements - at least in my market. We were required to show 2 years' reserves and our scores were 800+; and our lender wanted to see cash equivalents for reserves (i.e. no retirement funds).

Re: Reserves required for mortgage

joshall — Tue, 28 Apr 2015 04:54:32 GMT

@ChrisinKC wrote:
So I called my loan offcer this morning and found out that more than likely I will not have any reserve requirements. The same loan officer processed my last home loan and said I didn't have any reserve requirements then either.

He did ask me what my scores were and what my DTI was. With my scores (720+) and my DTI (5% without my mortgage payment), he said that it would be very unlikely that there would be any reserve requirements. He said if there were ANY reserve requirements, it would be a max of 2 months of just the mortgage payment.

Feeling much better now :-)

Wow! You are very lucky. No reserve required? Does that mean after closing you won't have any available cash? Your lender is exceptionally generous?!