Clearing Mortgage Reserve Requirements in Underwriting
Reserve conditions require the borrower to document additional liquid assets beyond down payment and closing costs. Requirements vary by loan type, LTV, an
What Is This Condition?
- Reserves are liquid assets remaining after closing that could cover PITIA payments. Requirements range from 2 months (basic conventional) to 12+ months (high-LTV, multiple properties, investor loans).
Reserves are liquid assets remaining after closing that could cover PITIA payments. Requirements range from 2 months (basic conventional) to 12+ months (high-LTV, multiple properties, investor loans).
How to Clear This Condition
- 01Calculate required reserves
- 02Identify all liquid asset sources
- 03Document retirement accounts at 60–70% of value
- 04Check if business assets qualify
- 05Submit documentation
Documents Required to Clear This Condition
- Bank statements documenting liquid reserves
- Investment account statements
- Retirement account statements (counted at 60–70% after penalty)
- Vested stock that can be liquidated
How CTC Handles This Condition
Reserve conditions often surprise borrowers who thought down payment funds were sufficient. CTC calculates reserve requirements at intake and alerts borrowers to shortfalls before submission.
Frequently Asked Questions
What are typical reserve requirements?
Conventional with 20% down: 2 months PITIA. High-LTV (under 20%): 2–6 months. Investor properties: 6 months per property. Multiple financed properties: 2–6 months per additional. Jumbo: typically 12 months.
Can retirement accounts count as reserves?
Yes — retirement accounts (401k, IRA, 403b) are counted at 60–70% of vested value after penalty assumptions. A $100,000 401k provides approximately $60,000–$70,000 in documented reserves.
Can reserves be a gift?
For primary residences: some programs allow gift reserves. For investment properties: generally no — reserves must come from the borrower's own funds.