When applying for a mortgage, a lender may ask a borrower to show "post-closing reserves," depending on the mortgage program that the borrower is applying for (the funds must only be "shown," they are not taken by the lender). This is a very common underwriting guideline when applying for a "Conventional" mortgage on a 2-unit property. For example, if the proposed "PITI" (principal and interest, real estate taxes and homeowner's insurance) total $2,000 per month, then a lender wants to see a total of $12,000 in reserve, post-closing. These assets, that need to be shown, may be excess liquid funds in bank accounts, monies held in mutual funds or retirement funds (lenders generally let a borrower use 60% of a non-liquid retirement account when used for reserve-purposes). Other types of mortgage transactions that may require "post-closing reserves" include:
- "Departing residence" transactions: when you buy a new home without selling your current home, lenders generally look for 6-months "reserves" on both properties on Conventional mortgage-transactions.
- "Cash-out," Conventional-mortgage refinance transactions on 2-unit properties (generally 6-months required)
- 5% down payment on Conventional-mortgage transactions for 1-unit properties (generally 3-months required)
Getting pre-qualified by a professional mortgage loan officer that is knowledgeable on all mortgage program-guidelines is a great start when engaging in the home-buying process. Call Citybrook Corp. today for a free mortgage pre-qualification.