Has your loan officer requested to see all of your bank and financial statements, even retirement funds beyond what you will be using for your down payment and closing costs? This might seem like more information than you need to provide, but there’s a reason behind it–your loan officer isn’t just nosy.
There are occasions when loan officers must show a borrower has “reserves,” or remaining funds available after the down payment and closing costs are paid. The amount of reserves required varies by loan product, investor, and the borrower’s circumstances. Below are a few situations in which your loan officer might ask you to show reserves. (To help you understand the overview below, one month of reserves is equal to a property’s monthly PITI, or principal, interest, taxes, and insurance.)
- You may be asked to show at least three months of reserves as a compensating factor for high debt to income ratios (See “Qualifying Ratio“).
- You may be asked to show at least three months of reserves if you are purchasing a 3-4 unit property.
- You may be asked to show reserves if you are converting your primary residence to a second home or investment property when purchasing a new primary residence with financing. In general, two months of PITI is required for each property you own with at least 30% equity and six months of PITI is required for property’s with less than 30% equity.
- Some investors require 6-12 months of reserves.
If you are interested in purchasing or refinancing in one of the following states, I will be happy to connect you with a licensed loan officer in your state: Maryland, Delaware, Connecticut, Florida, Georgia, Maine, Massachusetts, New Hampshire, New Jersey, North Carolina, Pennsylvania, Rhode Island, South Carolina, Washington D.C., or West Virginia.