buying a duplex, conventional loan requires reserve account?

Question

looking at a duplex and just received a call from a loan officer/broker stating I'll need a reserve account with x amount of money in it since I'm planning to to rent out half the the home. I was going to do that on my own anyway but just wondering if this is normal?

Alexander Lommel · Answer

Troy is right. When we got conventional financing for our duplex we needed the reserves up until close. After that the funds are yours to do with as you please. Be sure to hold onto the funds until close though. We sent verification of the funds from our checking account multiple times, last time just a few days before closing.

Jeremy Williams · Answer

ok, sounds like I won't have to worry about this then.  I'll work on getting more details tomorrow from the lender.  Appreciate the info, advice, and input from everyone

Jeremy Williams · Answer

I'd rather struggle for a few months than have to pay mortgage insurance for 10-30 years.  I have the option to do 15% down with this company but I can liquidate my non-ira account if need be. Like this deal too much to let it slip by.

Kevin Romines · Answer

All lenders that do non-owner occupied loans require reserves for each unit you own. As far as stocks go, most lenders will allow the use of stocks as reserve, however they will look at current market value of the stock and only count 60-75% of the value as reserves. This allows for some typical market fluctuations.

Have you considered buying the property using an FHA mortgage? Maybe an FHA 203k which allows you to buy the property as an owner occupied property and will also give you the money you need for the rehab costs. You can do this loan with 3.5% down and once the rehab is done, you can refi it into a conventional loan with better MI or no MI requirements.

Just some food for thought?

Jeremy Williams · Answer

Do they usually allow investments that are in stocks? I'd think volatility was a concern, unless it's a large account.

Elizabeth Colegrove · Answer

@Jeremy Williams

We have our "investment" reserve which is our fixing capital. Whenever we buy a new house we just use retirement funds for the reserve account.

Jeremy Williams · Answer

I understand that, the house needs work though.  I'll be living in one side fixing that up for a couple of months and then working on the other side.  This will probably push the ability to rent this out at least 2-3 months depending on the amount of the reserve.  I guess I just hate the fact that I won't be renting it for so long but will have this money sitting there probably gaining little to no interest.

Jon Holdman · Answer

Yes, Fannie Mae and Freddie Mac has reserve requirements to get a loan.  Lenders may impose higher requirements.  Truly, they're looking out for you.  If you put every dime you have into acquiring the property you won't have cash to handle the inevitable hiccups that occur with rentals.

buying a duplex, conventional loan requires reserve account?

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