Mortgage reserves are the number of months of mortgage payments you have in liquid assets after closing. Lenders require reserves to ensure you can make payments if you lose your job or face an emergency.
Requirements vary by loan type and property type. Investment properties typically require 6-12 months of reserves. Primary residences need 2-6 months depending on credit score and loan program.
Reserves must be in liquid accounts like checking savings or money market. Retirement accounts may count partially at 60-70% of value.
What Counts
Eligible reserves: checking/savings accounts, money market funds, CDs, stocks and bonds, vested retirement accounts (60-70% counted), and gifts from family members (with documentation).
How Many Required
Primary residence: 2 months typical, 6 months for high-risk loans. Second home: 2-6 months. Investment property: 6-12 months depending on number of properties. Multi-property investors: 6+ months per property.
Where to Keep Reserves
Keep reserves in liquid accounts you can access quickly. Money market accounts pay interest while staying liquid. CDs can work if they mature soon. Stocks count but at reduced value due to market risk.
Investment Property Requirements
Investment properties almost always require 6 months of PITIA reserves. If you own 4+ properties some lenders require 12 months. Seasoned investors with strong rental history may get reduced requirements.
How They Affect Approval
Reserves are not a credit score substitute but a supplement. Strong reserves can offset a slightly lower credit score. They show the lender you have a financial safety net beyond the down payment and closing costs.
Building Reserves
To build reserves: save 1-2% of the purchase price beyond your down payment. Automate savings into a dedicated account. Sell underperforming investments. Delay large purchases until after closing.