Reserves
Liquid funds the borrower must have available after closing, measured in months of full PITI payment.
Reserves are a safety cushion the lender wants to see, proof that if income hiccuped, the borrower could still make payments while they recovered. Reserve requirements vary by program, property type, occupancy, and loan size.
Primary-residence purchases on a conforming loan often require zero or two months of reserves. Second homes typically require two to six months. Investment properties commonly require six months or more, and jumbo loans frequently require 12 months or more, sometimes specifically against the new mortgage plus other documented obligations.
Acceptable reserves are typically liquid: checking and savings, money market accounts, marketable securities (sometimes counted at a haircut), and certain retirement accounts (counted at a discount and only if accessible). Real estate equity in other properties generally does not count toward reserves.
Related terms
Other terms you'll see alongside Reserves
The lender's formal review of a loan application to confirm it meets program guidelines and is acceptable to fund.
The percentage of your gross monthly income that goes toward debt payments, including the proposed new mortgage.
A property purchased not to live in but to rent out or hold for appreciation, with stricter financing terms.
A mortgage that exceeds the conforming loan limit and therefore cannot be sold to Fannie Mae or Freddie Mac.
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