Investor · Oklahoma City, OK · Member since 2014 · 61 posts · 31 votes
Been doing some research on the site and in my market to learn the ropes. Started talking to a few banks about financing my first investment purchases and had a question from this. One in particular is requiring 6 month's worth of reserves that will cover the mortgage in the case it doesn't get rented. Is this typical? Or is this just not a very investor friendly bank?
It makes sense for them to want a little more security on the loan but I just haven't heard of that from reading the forums yet. Just curious
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
Yes, that's typical. AFAIK, its still a Fannie/Freddie rules. But these rules do change. The rule is that if you have four or fewer mortgaged properties, including the new one, then you need six months PITIA (A=anything else, like HOA) reserves for the new one and two months for existing ones. For five to ten properties, you need six months for all properties.
IMHO this is optimistic. A better rule of thumb if you're going to be a landlord is six months rent, at least until you have maybe 10 properties or so. After that you can reduce this because you'll 1) have significant reserves, and 2) have multiple properties to produce income. Now, if you have a 50 unit apartment building, I'm not sure I'd back down too much. One bad event can take out the whole thing.