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Reserves required for mortgage

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New Contributor

Reserves required for mortgage

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.

 

 

Message 1 of 24
23 REPLIES 23
Senior Contributor

Re: Reserves required for mortgage

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

 

Message 2 of 24
New Contributor

Re: Reserves required for mortgage

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.
Message 3 of 24
Established Contributor

Re: Reserves required for mortgage

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


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Message 4 of 24
Valued Contributor

Re: Reserves required for mortgage

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.
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Message 5 of 24
Valued Contributor

Re: Reserves required for mortgage

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.


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Message 6 of 24
Valued Contributor

Re: Reserves required for mortgage

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

https://www.fanniemae.com/content/eligibility_information/eligibility-matrix.pdf
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Message 7 of 24
New Contributor

Re: Reserves required for mortgage

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.

 

 

 

Message 8 of 24
Highlighted
New Contributor

Re: Reserves required for mortgage


@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.

Message 9 of 24
New Contributor

Re: Reserves required for mortgage

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


@Sandibeach22 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.


 

Message 10 of 24
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