Real Estate Agent · Columbus, OH · Member since 2016 · 76 posts · 9 votes
I am looking at purchasing a duplex for 80k. I have 30k in equity on my primary residence. I am going to use this for the 20% down. This would be my second property. The lender I got my first mortgage through is saying I need 6k in reserves to meet the criteria. I only have about 2k in the bank since I have been fixing up my primary residence. She suggested maybe to check out a local private bank? (I Only make 22k annually after taxes and I am 20)
David, it sounds like you need to meet conventional financing requirements for reserves. These are not particularly onerous, and, quite frankly, are probably a good rule of thumb to follow. If you've got only $2000 in reserves right now, that's a little scary and you should not be buying another property. ($2000 wouldn't even cover a new HVAC system.) I realize you're young and excited, but requiring reserves is not only a prudent lending practice but also a prudent investing practice.
@David Stone Is this a duplex to buy/hold or to rehab/sell? By second property do you mean 2nd investment property (for 3 total) or are you counting your primary residence as the first and this duplex as the second? What is the current value of your primary residence?
David, it sounds like you need to meet conventional financing requirements for reserves. These are not particularly onerous, and, quite frankly, are probably a good rule of thumb to follow. If you've got only $2000 in reserves right now, that's a little scary and you should not be buying another property. ($2000 wouldn't even cover a new HVAC system.) I realize you're young and excited, but requiring reserves is not only a prudent lending practice but also a prudent investing practice.
Michael,
I am planning to buy/hold.
I only own one property my primary residence which is just a single family home.
The value of my primary residence is 80k.
Thanks for the response!
Don't get discouraged. There are other ways to cover the minimum requirements for reserve funds. If you have a 401k or a life insurance policy that allows you to invest a portion of your account. Both can have cash available to cover if you have the need. If you take money out they can have penilties but are a great back up along with being collatetal. I have both. Not sure where you are at in your life but both can be good investments in your future and you can use them to assist in assets for investing. Of course speak with a good, well known financial advisor you can trust. Best of luck!
If this is a conventional loan the reserve requirements have changed. I just wrote a post about this last week or a couple of weeks ago. Depending on how many mortgaged properties you have it's now a percentage. Example:
If you have 500K in loans that are investments, then you'll need 6% (this is for 7 to 10 Properties) which amounts to 30K.
Is this a conventional loan and how many properties do you own?
I would go ahead and take out the 20k from your primary which will give you a mortgage of 66K. The Duplex is 80K so the down payment will be 16K which will give you a mortgage of 64K for reserves you'll have to show 2% of 64K which is $1,280.00. You have 2k saved up so you're good.
You just need to make sure that your home is worth enough money to be able to get the cash out needed.
You don't need 6K in reserves so I would look for another lender that doesn't have any OVERLAYS.