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Bank Requiring Payment Reserves for Both Mortgages?

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Hooosier
Contributor

Bank Requiring Payment Reserves for Both Mortgages?

We have recently been pre-approved for a mortgage of 650K (pending 2014 tax filings) but we are only looking to purchase a home around 400K.  We asked our lender what our options might be if we found a house for 400K we really liked but were unable to sell our current home before the closing date of the new home purchase.  We currently owe 112K on our current mortgage and the lender said in order to keep both the current mortgage while adding the mortgage for the 2nd house we would have to show proof of funds in reserves (savings account) for mortgage payments for the next six months for both loans.  Is this a common practice from all lenders?

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edcampbell613
Contributor

Re: Bank Requiring Payment Reserves for Both Mortgages?

I am pretty sure that is a bank overay (nasty word)

 

I think its only 2 months.

 

Thats what we require for Fannie loans and we have very little overlays. 

 

 

(edit) also it looks as if equity on your current home plays a factor

 

30% or more equity = 2 months

6 months after that

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coterotie
Established Contributor

Re: Bank Requiring Payment Reserves for Both Mortgages?

Don't forget you can count money in retirement accounts as reserves if they can be accessed by you.  So it doesn't have to be in a Savings account.  Also you can condition money by having it in the account for 2 months.  So let's say you went into a bank and got one of their promo equity lines with a no closing cost and low promo rate and lets say you took an intial advance and let's say that was put into a savings account.  After 2 months, the money is conditioned and doesn't count as borrowed money.  You could then repay the money, but keep the equity line as a no cost reserve account.

 


@Hooosier wrote:

We have recently been pre-approved for a mortgage of 650K (pending 2014 tax filings) but we are only looking to purchase a home around 400K.  We asked our lender what our options might be if we found a house for 400K we really liked but were unable to sell our current home before the closing date of the new home purchase.  We currently owe 112K on our current mortgage and the lender said in order to keep both the current mortgage while adding the mortgage for the 2nd house we would have to show proof of funds in reserves (savings account) for mortgage payments for the next six months for both loans.  Is this a common practice from all lenders?


 

Message 3 of 4
Barneygirl
Frequent Contributor

Re: Bank Requiring Payment Reserves for Both Mortgages?


@coterotie wrote:

Don't forget you can count money in retirement accounts as reserves if they can be accessed by you.  So it doesn't have to be in a Savings account.  Also you can condition money by having it in the account for 2 months.  So let's say you went into a bank and got one of their promo equity lines with a no closing cost and low promo rate and lets say you took an intial advance and let's say that was put into a savings account.  After 2 months, the money is conditioned and doesn't count as borrowed money.  You could then repay the money, but keep the equity line as a no cost reserve account.

 


@Hooosier wrote:

We have recently been pre-approved for a mortgage of 650K (pending 2014 tax filings) but we are only looking to purchase a home around 400K.  We asked our lender what our options might be if we found a house for 400K we really liked but were unable to sell our current home before the closing date of the new home purchase.  We currently owe 112K on our current mortgage and the lender said in order to keep both the current mortgage while adding the mortgage for the 2nd house we would have to show proof of funds in reserves (savings account) for mortgage payments for the next six months for both loans.  Is this a common practice from all lenders?


 


I'm actually in underwriting for a similar situation.  Second home = 6 months reserves on BOTH homes.  No way around it, unless you have a considerable amount of equity in your exisiting home (I believe 30% is correct). 

 

Now, there are a lot of things that can be considered "reserves"....ie, stocks, 401k, other retirement funds, savings, checking.....but anything you have needs to be at least two months seasoned.   It's possible to do the LOC, but beware that that LOC will add to your overall DTI.... so be careful you don't exceed!!   Most 2nd mortgages require that the DTI be less than 44.9% of total income ...including the new home.

 

Documentation has been insane.  Keep your bank accounts clean.  Use one or two primary accounts for checking/savings.... and don't move money around.  Everything is questioned... every deposit over $200 was questioned for me, even though I've deposited checks in my accounts regularly for the last year that are over that amount. 

 

One last thing... keep in mind that investment funds are pro-rated.  I think it's about 60% of their total value, as they assume prepayment penalties for early withdrawl if necessary.  My stock was at market value. 

 

If you have questions private message me.... am glad to offer any insight I can.


Current FICO Scores: EQ749; TU732; EX733
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