What is meant by liquidity reserves when applying for a loan?

 When applying for an investment property mortgage loan, it is important to find out the lender’s liquidity requirements before you even complete or submit a formal loan application. Part of the pre-application process at Atlas is to review a borrower’s PFS (personal financial statement). That statement should list all the borrower’s current liquid assets including personal bank accounts, stock accounts, cash value life insurance policies, and of course, liquid assets that may be in a business account. Be sure you have statements to back up what you list as of that date, since an underwriter may ask for them. Why is this so important? While you may have sufficient cash to close on a new property, nearly every lender will look at the liquid assets to determine if the applicant has sufficient fallback cash reserves post-closing. These reserves can vary from lender to lender and also by loan program. Cash liquidity reserves are also applicable for refinancings, even if the new loan is providing substantial cash out to the borrower. In that case, the underwriter may be looking at pre-close rather than post-close reserves. Basically, the purpose of this review is to see just how long a borrower can weather a downturn or be able to come up with cash in the event of a major urgent capital need. Any questions, let me know.