Mortgage Rates
Refinance Rates
FHA Rates
VA Rates
Jumbo Rates
Adjustable Rate Mortgage Rates
Interest Only Mortgage Rates
Non-Owner Occupied Rates
Home Equity Loan Rates
Reserve Requirement for a Mortgage

Reserve Requirement for a Mortgage

    Depending on your credit and financial profile, mortgage program, loan type and other factors, lenders may require that borrowers hold a minimum level of financial reserves at the time your mortgage closes.  Mortgage reserve requirements are designed to help borrowers better manage financial uncertainties after your loan closes.  While many borrowers are able to qualify for a mortgage without reserves, some borrowers are required to verify a specified level of financial reserves.

    For many borrowers, the reserve requirement presents a significant and unexpected financial challenge as they are required to come up with more funds in addition to paying their down payment and closing costs. For borrowers who are stretching to afford a home, the reserve requirement may cause them to delay the process or put buying a home out of reach. It is important that borrowers understand the reserve requirements for a mortgage upfront so that they can save sufficient funds to pay for all the costs associated with getting a mortgage and have enough money leftover in reserves.

    There are several points you should understand about reserve requirements in case your mortgage lender requires them.  First, reserve requirements are typically based on a certain number of months of total housing expense. For example, you may be required to hold three months of total monthly housing expense as funds in reserve at the time your mortgage closes. Total monthly housing expense includes your monthly mortgage payment, property tax, homeowners insurance and other applicable housing-related expenses such as mortgage insurance or homeowners association (HOA) fees. If your total monthly housing expense is $2,500 and your lender imposes a three month reserve requirement you would be required to hold at least $7,500 in funds when your mortgages closes ($2,500 * 3 months = $7,500). It is important to highlight that reserve requirements are usually based on total monthly housing expense and not just your monthly mortgage payment, which increases your financial burden.

    Another point to consider is that there are acceptable and unacceptable sources of reserves for a mortgage.  Lenders are focused on liquid assets so funds in checking, savings and brokerage accounts are acceptable sources of reserves.  Holdings in stocks, bonds, mutual funds, CDs, money market funds and trust accounts are also acceptable sources of reserve funds.  Additionally, the vested portion of a retirement account or life insurance policy can also be used for reserves although lenders typically only give borrowers partial credit for the value of their retirement accounts.        

    Unacceptable sources of funds for reserves include personal loans; unvested funds, stocks or stock options; equity in another property you own; private company stocks; and, money that you cannot access unless you retire, lose your job or pass away. Additionally, proceeds from a cash-out refinance cannot be used for mortgage reserves. Depending on the mortgage program and lender guidelines gifts may be an acceptable source of funds for reserves but borrowers should confirm with their lender how gifts are treated.

    Lenders are required to verify the sources of borrowers' reserve funds.  Borrowers are typically required to provide bank and brokerage account statements for the most recent two months as well as other relevant documents to verify their assets.  Because account values can fluctuate, lenders may use the two month average value of an account to calculate a borrower's liquid assets.   

    Additionally, the lender subtracts any funds designated for your down payment and closing costs to determine the value of your liquid funds after your mortgage closes. Any recent large deposits into your accounts may need to be seasoned, or in the account, for at least two months prior to your mortgage closing for the lender to consider that deposit in your asset calculation. Large deposits in your accounts within two months of your mortgage may be interpreted as a gift or a loan by the lender and may not be an acceptable source of reserve funds.

    While mortgage reserve requirements are an important consideration, please note that lenders have no control over how borrowers spend their money after your mortgage closes.  Although you are free to spend your money as you please, we recommend that borrowers maintain three to six months of total monthly housing expense as savings in reserve after your loan closes as sound financial planning.   

    The table below outlines the mortgage reserve requirements for many different mortgage programs and types of loan. Please note that reserve requirements vary according to many different factors including credit score, debt-to-income ratio, loan-to-value (LTV) ratio, loan program, loan type and property type.  In general, the mortgage reserve requirements, if applicable, are higher for borrowers with lower credit scores, higher debt-to-income ratios and higher LTV ratios.  The reserve requirements are also typically higher for investment properties and properties with more than one unit.  Borrowers should always check with lenders at the beginning of the loan process to determine how the mortgage reserve requirements apply to them.

  • Reserve Requirements by Mortgage Program and Loan Type
  • Conventional Mortgage
    • 1 Unit Property: 0 to 6 months of reserves are required depending on debt-to-income ratio, credit score, loan-to-value (LTV) ratio and mortgage program
    • No reserves are required with a minimum credit score of 700
    • No reserves are required with a minimum credit score of 640 and LTV ratio less than or equal to 75%
    • Two months of reserves are required with a debt-to-income ratio greater than 36%, credit score of at least 680 and LTV ratio greater than 75%
    • Six months of reserves are required with a credit score of 660 or lower and LTV ratio greater than 75%
    • 2 to 4 Unit Property: 6 to 12 months of reserves are required depending on debt-to-income ratio, credit score and loan-to-value (LTV) ratio
    Second Home / Vacation Home
    • 1 Unit Property: 2 to 12 months of reserves are required depending on debt-to-income ratio, credit score and loan-to-value (LTV) ratio
    • 2 months of reserves are required with a minimum credit score of 700 and LTV ratio greater than 75%
    • Twelve months of reserves are required with a debt-to-income ratio greater than 36%, credit score of 680 or lower and LTV ratio greater than 75%
    Investment Property
    • 1 Unit Property: 6 to 12 months of reserves are required depending on debt-to-income ratio, credit score and loan-to-value (LTV) ratio
    • Six months of reserves are required with a minimum credit score of 700 or with a credit score of 660 if the LTV ratio is less than or equal to 75%
    • Twelve months of reserves are required with a debt-to-income ratio greater than 36%, credit score of 680 or lower and LTV ratio greater than 75%
    • 2 to 4 Unit Property: 6 months of reserves are required if the credit score is greater than or equal to 680 and LTV ratio is greater than 75%
    • 12 months of reserves are required if the credit score is 660 or less and and LTV ratio is less than or equal to 75%
    Jumbo Mortgage
    • 3 to 6 months of reserves are typically required for a jumbo mortgage, depending on the lender and program
    Cash-Out Refinance (Primary Residence)
    • 1 Unit Property: 0 to 6 months of reserves are required depending on debt-to-income ratio, credit score, loan-to-value (LTV) ratio and mortgage program
    • 2 to 4 Unit Property: 6 months of reserves are required if the credit score is greater than or equal to 700 and 12 months of reserves are required if the credit score is 680 or less and debt-to-income ratio is greater than 36%
    FHA Mortgage
    • 1 to 2 Unit Properties: No reserves are required except for borrowers with challenging, non-traditional credit profiles or unique circumstances that require manual underwriting
    • For 1 to 2 unit properties, one month of reserves is required for borrowers that require manual underwriting
    • 3 to 4 Unit Properties: Three months of reserves are required
    VA Mortgage
    • 1 to 2 Unit Properties: No reserves are required
    • 3 to 4 Unit Properties: Six months of reserves are required
    • If you are buying a multi-family property and need rental income from the property to qualify for the loan, up to six months of reserves is typically required.  If you do not need the rental income to qualify for the mortgage, no reserves are required as long as the property is one or two units
    • Three months of reserves are required for each rental / investment property the borrower owns
    USDA Home Loan
    • No reserves are required but having at least two months of reserves can help the borrower qualify for the USDA Home Loan Program
    HUD Section 184 Home Loan
    • Single Unit Property: no reserves required
    • 2 to 4 Unit Property: six months of reserves are required
    Fannie Mae 97% LTV / 3% Down Mortgage
    • 1 Unit Property: 0 to 6 months of reserves are required depending on debt-to-income ratio, credit score, loan-to-value (LTV) ratio and mortgage program
    • No reserves are required with a minimum credit score of 700
    • No reserves are required with a minimum credit score of 640 and LTV ratio less than or equal to 75%
    • Two months of reserves are required with a debt-to-income ratio greater than 36%, credit score of at least 680 and LTV ratio greater than 75%
    • Six months of reserves are required with a credit score of 660 or lower and LTV ratio greater than 75%
    • 2 to 4 Unit Property: 6 to 12 months of reserves are required depending on debt-to-income ratio, credit score and loan-to-value (LTV) ratio
    Home Possible Mortgage
    • 1 Unit Property: No reserves are required
    • 2 to 4 Unit Properties: Two months of reserves although the requirement may be higher in some cases
    HomeReady Mortgage
    • 1 Unit Property: 0 to 6 months of reserves are required depending on debt-to-income ratio, credit score, loan-to-value (LTV) ratio and mortgage program
    • No reserves are required with a minimum credit score of 700
    • No reserves are required with a minimum credit score of 640 and LTV ratio less than or equal to 75%
    • Two months of reserves are required with a debt-to-income ratio greater than 36%, credit score of at least 680 and LTV ratio greater than 75%
    • Six months of reserves are required with a credit score of 660 or lower and LTV ratio greater than 75%
    • 2 to 4 Unit Property: 6 -to12 months of reserves are required depending on debt-to-income ratio, credit score and loan-to-value (LTV) ratio
    HomeStyle Renovation Mortgage
    • 1 Unit Property: 0 to 6 months of reserves are required depending on debt-to-income ratio, credit score, loan-to-value (LTV) ratio and mortgage program
    • No reserves are required with a minimum credit score of 700
    • No reserves are required with a minimum credit score of 640 and LTV ratio less than or equal to 75%
    • Two months of reserves are required with a debt-to-income ratio greater than 36%, credit score of at least 680 and LTV ratio greater than 75%
    • Six months of reserves are required with a credit score of 660 or lower and LTV ratio greater than 75%
    • 2 to 4 Unit Property: 6 to 12 months of reserves are required depending on debt-to-income ratio, credit score and loan-to-value (LTV) ratio
    • For two to four unit properties, borrowers are required to include a contingency reserve equal to 10% of the renovation project costs
    Bank of America Affordable Loan Solution
    • No reserves are required for most borrowers
    Chase DreaMaker Mortgage
    • No reserves required in most situations
    Citibank HomeRun Program
    • Two months of reserves are required
    NACA Mortgage Program
    • One to two months of reserves are required
    Wells Fargo yourFirst Mortgage
    • No reserves are required
    Your Path Mortgage Program
    • 1 Unit Property: No reserves are required
    • 2 to 4 Unit Properties: Two months of reserves are required
  • As outlined above, mortgage reserve requirements vary by lender and loan program.  We recommend that you contact multiple lenders in the table below to learn more about their reserve requirements and request loan terms.  Comparing multiple lenders and shopping for your mortgage is the best way to find the loan that is right for you.

  • Rate Details*
    Loan Program:  
    Monthly Payment:  
    APR:  
    Rate:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
     
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    (Estimated)
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    (Estimated)
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    (Estimated)
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Current Mortgage Rates as of December 11, 2018
    • Lender
    • APR
    • Loan Type
    • Rate
    • Payment
    • Fees
    • Contact
    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
  • Sources

    Conventional Reserves: https://www.fanniemae.com/content/guide/selling/b3/4.1/01.html

    FHA Loan Reserves: https://www.hud.gov/sites/documents/40001HSGH.PDF#page=240

    VA Loan Reserves: https://www.benefits.va.gov/WARMS/docs/admin26/pamphlet/pam26_7/ch04.pdf

    USDA Home Loan Reserves: https://www.rd.usda.gov/files/IA_hp_rhsgianews-04-2017.pdf

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

X

Get Free Personalized Mortgage Quotes

First Name:
Last Name:
Phone Number:
Email:

My Mortgage Info

Mortgage Type
Credit Score
Loan Amount
Property Value
City
State
GET FREE Quotes
FREEandCLEAR.comThank you for submitting your information!
FREEandCLEAR.comYour mortgage quote request has been sent to our lending partners and you should receive emails from multiple lenders shortly
FREEandCLEAR.comComparing proposals from multiple lenders is the best way to save money on your mortgage!