24 months of rent in reserve?

6 Replies

My mother (retired) owns 2 condos and her own home free and clear. She went to Wells Fargo to take LOCs on the 2 condos to access the equity to buy another unit and was told they would do 60% LTV. Now Wells Fargo wants to see verification of assets equaling 24 months of RENT payments on the two condos. This seems insane. She has close to that amount in various bank accounts but not quite and this is holding things up.
Is 24 months of rent in reserve reasonable?  If not, how can she argue the amount down with WF?  What's a better way (apart from WF)?

Have you checked with another bank? WF did something similar to me, they like seeing high reserves. I just went somewhere else. 

24 months is extreme.  As far as arguing, the lender's are allowed to make up their own lending rules and it won't matter if you argue or not, they won't change them.  I'm wondering if the loan officer is even correct though as six months to a year of rent reserves is typically sufficient.

Just about anything is better than Wells Fargo. Not only are their actual rules seemingly arbitrary, you'll get a different story on what those rules are from different employees.

To be fair, I have not done business with them for several years and things could have improved. (she added, grudgingly...)

I believe from a banks point of view your mom is difficult to judge. On one hand she is still a rookie with ONLY two units so high risk to fail, on the other hand it's ALREADY two units, which is enough to get her is trouble if they both go vacant for a long time (and are mismanaged - which is the default assumption). 

You heard it from the other guys, shop around, it should not be too hard to find something better than that. I would say 70% LTV for 5 years at 5% interest with 6 month cash reserves for PITI should be fairly easy to get by. Google local banks and credit unions. Good luck.

She might have more luck if she tried to mortgage them as opposed to taking a line of credit. I believe that the Fannie Mae guidelines on a cash out mortgage are a 75% LTV for fixed rated loans, and a 65% on ARM's. They require 6 months in reserve funds for 720 FICO scores and 12 months reserves with a 700-720 FICO score.

Are there any retirement plans (IRA, 401k, 503b, etc) that have assets? Are there any holdings in mutual funds? See if the underwriters will accept some of those holdings in lieu of dollars in some bank account.

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