Do you need reserves if your current primary home hasn’t sold? Yes, most likely. It is the top trending question on the Fannie Mae Website.
An underwriter will ask for additional reserves If the borrower's current primary home is pending sale or is being converted to a second home or investment property. Reserves are cash money that a borrower has in case of an emergency. Additionally, the reserves are calculated using the housing expense (principal, interest, taxes, insurance, and association dues) times how many months the guideline requires. Cash money is liquid financial assets, like savings and checking or investments in stocks, bonds, mutual funds, certificates of deposit, money market funds, and trust accounts. Investment amounts maybe discounted for actual reserve amount. Retirement funds can be used as reserves but there are rules. Review my past blog on retirement accounts as reserves.
For a mortgage loan secured by the borrower’s principal residence, the minimum reserve requirements are determined by the underwriting report from Fannie Mae (DU-Desktop Underwriting) or Freddie Mac (LP-Loan Prospector). The underwriting report will tell you what reserves are needed and may vary depending on the credit, downpayment, and other underwriting criteria.
The additional reserves (in addition to those required by DU or the Eligibility Matrix) are:
*with 30% or more equity in current home, the guidelines are 2 months on subject property and 2 months on current principal residence
*with less than 30% equity in current home, the guidelines are 6 months on subject property and 6 months on current principal residence
An underwriter will ask for additional reserves If the borrower's current primary home is pending sale or is being converted to a second home or investment property. If you are looking to buy or build your home, it is essential that you find a licensed residential mortgage loan originator who you trust and will review your situation and then provide guidance of what reserves you will need to accomplish your goals. If you are in Texas (especially North Central Texas), contact Jimmy Smith NMLS#1089067 at (214) 872-9091 for a free no obligation loan consultation or click on this hyperlink.
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