Six months mortgage reserves required?

Question

Hey all - question on necessary reserves when applying for a loan through a US bank. I'm currently working on closing my second US property, first time financing through a bank. They just mentioned that I need to show proof of at least 6 months reserves to cover all of my loan payments globally. I have enought to cover but this is a pretty significant number - and if this is always the case its going to really impede my ability to take out investment property loans again anytime soon.

My question is, is this a general requirement or bank specific. I don't want to get it to a conarration on the merit of adequate reserves, just want to understand general requirements. I've taken out 3 very sizable loans in Japan and the question of requires reserves has never come up.

Charles Morgan · Answer

Just because I put every spare dollar into buying cheap fixer-uppers I'm not fiscally conservative? LOL. Guilty!

I have about 1 months mortgage reserves in the bank and can cover 3 in my Line of credit. Risky but I am pushing less than a year to retirement and need to make up for 40+ years of financial ignorance...

Chris Mason · Answer

This is a general requirement.

Fiscally conservative people generally have 401ks or IRAs to cover it.

BPers are not fiscally conservative.

Chris Mason · Answer

Correct, they will be counted at 60% of value. Stocks and mutual funds not in retirement vehicles will be counted at 70% of value. In the case of stocks and mutual funds, it's a cheezy trick but you can just sell all the stocks/funds, wire it all into a checking account, close, and then put it right back into stocks the day after you get keys in-hand, if you want/need it counted at 100%. That would be a horrible idea for retirement vehicles because of the tax hit you'd take.

> "that wasn't mentioned to me initially however by my lender."

I wonder how many deals per week die because loan officers and mortgage brokers just aren't asking the right questions. "Do you have any retirement accounts?" is not a rocket science question to ask. I am continually shocked by my profession.

Account Closed · Answer

Chris thanks so much for the heads up. I sent over statements for my 401k and Roth IRA accounts earlier today as it was the last item pending and just received a notification that my loan has been conditionally approved! If this hadn't worked I was going to have to show proof of funds in my Japanese bank accounts which because they don't offer monthly electronic statements in this country is like pulling teeth.  Thanks again and yes, would have been worlds easier if they had mentioned or asked up front instead of assuming I didn't have the retirement account. To all the lenders out there dealing with potential loan candidates - just ask!

Chris Mason · Answer

Saving deals that aren't even on my desk on BP since 2015. :P

(You also would likely have had to have the Japanese bank statements officially translated line for line...)

Account Closed · Answer

Oh trust me I know... I'm going through that nightmare for all my other documents from here right now.

Account Closed · Answer

Oh so 401Ks and IRAs are in scope for the reserves?  If that's the case then I have no problem... that wasn't mentioned to me initially however by my lender.

Russell Brazil · Answer

It's a standard requirement for a Fannie/Freddie loan

Six months mortgage reserves required?

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