buying a 2nd property must show 6 month reserve?

10 Replies

I just got off the phone with a lender and he informed me that I will need 6 month of reserved mortgage payment for each of the properties to obtain a mortgage for a property I want to purchase. Is this true for all programs out there?

This will be my 2nd property.

FannieMae requires a certain amount in reserve.  I didn't think it was 6 months until you had more properties. But some lenders have overlays beyond FannieMae requirements. You can ask lenders if they are giving you their rules or if that's the Fannie Mae rule. 

I recently purchased my first (besides my primary) and I needed 6 months reserves for both properties according to each lender I spoke with. Most would count any 401k saved so it wasn't a big deal. 

No, not all lenders have the same requirements. 6 mos on both properties seems like a lot, but this lender may be more conservative than others. However, they are trying to protect both themselves and you. You do need to think about the worst case scenario (both properties lose their tenants, or some big repairs all needing done at once) and plan for that contingency. IMO, you're actually a little more vulnerable with just a few properties. Once you have several the odds of things going wrong on all of them at once drop off!

Most banks I have talked with require this once you hit loan #5.  If the reserves are a problem it shouldn't be hard to find another lender who does not have a requirement until you hit #5.

Most will only count a percentage of retirement accounts toward your reserve, they may even ask for paperwork to see how much you could withdraw in an emergency.

can you give me the names of those banks as I have spoken to 3 local ones and they require 6 month for each property. (I only own 1 now).

Also any option for less than 20% down for a 2nd property? My first property is FHA financed with really low interest 3.3% so I want to avoid refinancing my first property.

Hello Mina,

You're looking at a minimum of 6 months reserves on the new purchase ( 2nd home ) and 2 months on your primary.

I hope this helps :)

Originally posted by @Shaun Weeks:

Hello Mina,

You're looking at a minimum of 6 months reserves on the new purchase ( 2nd home ) and 2 months on your primary.

I hope this helps :)

Just to be clear your primary will always be 2 months of reservers and every home after that will be at least 6 months up to 12 depending on your personal situation. 

 If it's a jumbo loan reserves can go all the way up to 36 months

Originally posted by @Mina G:

I just got off the phone with a lender and he informed me that I will need 6 month of reserved mortgage payment for each of the properties to obtain a mortgage for a property I want to purchase. Is this true for all programs out there?

This will be my 2nd property.

 Just to Clarify further from what Shaun has mentioned its:

6 months on the subject property for all investment and 2nd home purchases despite how many financed properties you have

The 2 month requirement for the primary is not always true as I will get no reserves for the primary most of the time on my approval decisions, but yes it is required only if the automated approval that comes through requires it.

As for 1-4 financed properties if your doing a loan on your investment property its 6 but the other non owner and second homes only require 2 months of reserves up till you hit your 5-10 financed properties at which point you need 6 months reserves on all properties that are 2nd or investment financed (except for primary which can vary from 0-2).

I would not try to get around this.  The bank is protecting you in a way.  There letting you know it may not be smart decision to buy another property without having reserves.  Six months of house payments is not much to ask for after all. When I brought my primary home (used to the other as the rental) the bank wanted six months reserves, plus a lot of extra paperwork.  

6 months is fairly standard.  The reserves banks have require for me could be in the form of a retirement account.

Frank

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