Asset and reserves requirements for mortgage

[Cornflakes]

What is typical reserves requirements from lenders for 80/20 loan? I clearly have 8 months plus reserves left after the down payment and closing costs and my LO is giving me runaround that it is not enough and quoting me higher tier 2 rates.

DTI is very low and credit is not issue. It's the reserves, per the LO.

 

[sgip]

Generally speaking - not my bank or any banks policy specifically - here's what might help answer your question.

1) 0-$417k Standard Conforming requires 2 months reserves

2) $417,001 to $625,500 Jumbo Conforming requires 2 months reserves

3) $417,001 to $1,000,000 Bank Jumbo requires 6 to 12 months reserves. If your loan is $550k and pricing is better than Jumbo Conforming, when using a Bank Jumbo product you may need 6 to 12 months of reserves. If you don't have it, then your loan reverts to Jumbo Conforming and the rates aren't so hot, but your reserves are OK.

In any case, some funding sources will have overlays to FNMA/FHLCM Standard and Jumbo Conforming cash reserve rules. It's rare, but it can happen.

Some lenders allow gifts for reserves. Other lenders require the funds to be cash in hand, not 401k or IRA funds. If you've got 401k assets, remember that it's 60% of the VESTED amount, not the total. 

My 02c

 

[Irvine Seeker]

What is typical reserves requirements from lenders for 80/20 loan? I clearly have 8 months plus reserves left after the down payment and closing costs and my LO is giving me runaround that it is not enough and quoting me higher tier 2 rates.

DTI is very low and credit is not issue. It's the reserves, per the LO.

At least you got some answer back from your lender...  After meeting all requirements and numerous documents submission, I still don't have answer from the preferred lender one way or another.  In fact they asked if I can show more cash.

I'm working with a different lender now. 

 

[Perspective]

Wells requires twelve months' reserves on jumbos (> $625K). They'll discount your retirement savings ~35%.

 

[Cornflakes]

thanks for the answers. I will see what turns out to be the case with my lender.

In a grand scheme of things, this whole reserves requirement is a bogus one IMO. Much better predictor of if borrower will be able to carry payment in case of unforeseen circumstances is combination of 5-10 year payment history on all accounts, and monthly spending relative to income(ask for credit card, bank statements).

A borrower who is an impulse buyer and spends big % of monthly income is higher risk, even with 12 months reserves, than a borrower who typically spends smaller chunk of monthly income. Why should it matter to lender if financially responsible borrower diverts savings in mattress, checking acct, 401, real estate or wherever?

 

[collected]

thanks for the answers. I will see what turns out to be the case with my lender.

In a grand scheme of things, this whole reserves requirement is a bogus one IMO. Much better predictor of if borrower will be able to carry payment in case of unforeseen circumstances is combination of 5-10 year payment history on all accounts, and monthly spending relative to income(ask for credit card, bank statements).

I think the reserve requirement is for when a borrow suddenly loses a job or if their business starts failing right after getting the mortgage.  The banks are at most risk of losing ROI if the borrower defaults right after buying the home.  Home prices can dip a little during a recession and a borrower is most likely going to lose a job during a recession.  Also foreclosed homes typically go for less than fair market value.

There's some lenders out there which allow up to a 1 million mortgage with 15% down and 6 month reserves without raising rates or pmi.