Reserves on conventional loan

8 Replies

I have multiple investment properties and living in a SFR. I am wanting to buy another house to owner occupy and turn my current house into a rental. What are the reserve requirements for a conventional loan with Fannie Mae? Do I only need a few months of PITI for the primary or will I need a % of the unpaid principal balance of all my properties ?

@Chris Mason  

Originally posted by @Michael Bertsch :

I have multiple investment properties and living in a SFR. I am wanting to buy another house to owner occupy and turn my current house into a rental. What are the reserve requirements for a conventional loan with Fannie Mae? Do I only need a few months of PITI for the primary or will I need a % of the unpaid principal balance of all my properties ?

@Chris Mason 

 Hi Michael,

This is less likely to be a huge issue in Louisiana compared to California due to the loan amounts, however in addition to 6 months of PITI reserves for the subject property, you must also have...

- You have 1-4 financed properties. 2% of unpaid mortgage balances.

- You have 5-6 financed properties. 4% of unpaid mortgage balances. This typically works out to being about ballpark 6 months of PITI reserves for all rental properties, which was the old standard (and is the current Freddie Mac standard).

- You have 7-10 financed properties. 6% of unpaid mortgage balances. 

Subject prop just needs the six months, not the above in addition to that. Primary residence does not need reserves. 

@Chris Mason

If I buy the house with 10% down, can I get an appraisal done in about 6 months or so to remove PMI? There will be a good bit of equity in this deal.
ARV $200k,
purchase price $140k,
LTV 90%,
loan will be around $126k

PMI is permanent and does not go away when LTV gets below 80% (like they did in the past), on today's FHA loans!

Originally posted by @Robert Leonard :

PMI is permanent and does not go away when LTV gets below 80% (like they did in the past), on today's FHA loans!

Robert is correct in that FHA loans maintain PMI for the life of the loan since 2013. There is talk of removing that, but any loan originated currently will never eliminate PMI. However, if you do have the 80% equity as determined by an appraiser, you could refinance into a conventional loan so you would get rid of the PMI by changing out of the FHA loan.

It’s going to be traditional loan not FHA. Is that going to be a little different?

Originally posted by @Michael Bertsch :

@Chris Mason

If I buy the house with 10% down, can I get an appraisal done in about 6 months or so to remove PMI? There will be a good bit of equity in this deal.
ARV $200k,
purchase price $140k,
LTV 90%,
loan will be around $126k

 You'd have to do a full refi. :\

Thanks guys! I just spoke with my lender. He said after living in the property for 2 year, I can get an appraisal done and it will remove PMI. It will require refinance if I want it done prior to that.

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