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Reserves required for mortgage

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Valued Contributor

Re: Reserves required for mortgage

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.
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Message 11 of 24
New Contributor

Re: Reserves required for mortgage

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.



Message 12 of 24
Established Contributor

Re: Reserves required for mortgage


@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


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Message 13 of 24
Senior Contributor

Re: Reserves required for mortgage


@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.

 

Message 14 of 24
New Contributor

Re: Reserves required for mortgage


@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.

Message 15 of 24
Highlighted
New Contributor

Re: Reserves required for mortgage

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 :-)

 

 

 

 

Message 16 of 24
Valued Contributor

Re: Reserves required for mortgage

great news!

 

good luck on your new home purchase!!

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Message 17 of 24
Established Contributor

Re: Reserves required for mortgage

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"?


@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.


 


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).

 

Message 18 of 24
New Contributor

Re: Reserves required for mortgage

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"?


@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.


 


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).

 


 

Message 19 of 24
Contributor

Re: Reserves required for mortgage


@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?!

Message 20 of 24
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