Loan or gift for reserve requirements?

4 Replies

Let's say an investor is buying a 4 plex for 150k putting 25% down and needs to have 20k in liquid reserves per the bank, if you were short say 10k, can you borrow 10k for the remaining or is that not allowed? I know it's not allowed for the DP but curious about the reserve requirements. 

Well technically if you borrow it you would have to add that payment to your DTI. You're also allowed generally allowed gift funds no limit. But something people often forget is you can often use retirement accounts at 60 to 75% of market value for reserves.

Hi @Samantha Klein ,

No gifts or unsecured loans for investment properties. 

Secured loans are fine, provided your DTI can take the hit. 2nd mortgages are the most common implementation of this loophole: "It's NOT a gift, it's a second mortgage on ANOTHER property I own, secured with a formal note and deed of trust recorded at the county, at 3%, interest only, with a balloon payment due in 30 years. NOT A GIFT."

Now, really, is 3% i/o such cheap money that it's basically a gift? Yeah, pretty much. But is it a gift per mortgage guidelines? Technically, no, with a few nuances.

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211
Originally posted by @Samantha Klein :

@Chris Mason Is it 6 months reserves now or 2% of unpaid mortgage balances?

 Freddie and Fannie differ. The above guideline loophole is a Fannie thing, so the Fannie answer is 6 months on subject property, plus 2% of UPB on others, for those with 4 or fewer financed properties. 

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

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