Review Mortgage Reserve RequirementsAdditionally, applicants with higher debt-to-income ratios and lower credit scores may be required to hold twelve months of housing expense in reserve. Plus, as we detail below, if you own more than one rental property financed with a mortgage or other type of loan, you are required to hold additional reserves.
Own 1 - 4 rental properties: 2% of the total loan balance in reserve
Own 5 - 6 rental properties: 4% of the total loan balance in reserve
Own 7 - 10 rental properties: 6% of the total loan balance in reservePlease note that total loan balance referenced above excludes the rental property being financed, which requires six or twelve months of reserves, and your principal residence.The table below shows rental property mortgage terms for leading lenders near you. We recommend that you contact multiple lenders to confirm their reserve requirements. Shopping lenders is also the best way to save money on your mortgage. The final point we should highlight is that the requirements outlined above apply to a conventional mortgage, which is the standard loan program offered by traditional lenders such as banks, mortgage brokers and credit unions. Non-traditional lenders such as private money lenders -- also known as hard money lenders -- may offer more flexible reserve requirements, but it comes at a cost.Private money lenders usually charge significantly higher mortgage rates and closing costs and apply stricter qualification requirements in other areas. For example, most private money lenders apply a lower loan-to-value (LTV) ratio which means you are required to have more equity in your property to qualify.
Review How a Private Money Mortgage WorksSimply put, a private money lender is usually the lender you turn to when you have no other financing option but they can be helpful for borrowers with very specific challenges. As an example, you may be able to qualify for a private money rental property mortgage with limited financial reserves.If you decide to apply for a private money loan be aware of the much higher interest rate and fees. We also recommend that you refinance the loan with a traditional mortgage as soon as you meet the qualification requirements, keeping in mind any prepayment penalty you may be required to pay.You can use the FREEandCLEAR Lender Directory to search over 3,900 lenders by location and lender type. For example, you can find private money lenders in your state that offer rental property mortgages.
"B3-4.1-01, Unacceptable Sources of Reserves." Selling Guide: Fannie Mae Single Family. Fannie Mae, August 7 2019. Web.« Return to Q&A Home About the author