Borrowers often come to us with just enough funds for their down payment, without accounting for closing costs and reserves.
“Reserves” have become a bigger issue lately as more borrowers shift into the jumbo arena. Reserves are the liquid funds left over after a transaction closes. Reserve requirements are usually expressed as a given number of months of payments – anywhere from 1 to 24 months of payments, depending on loan type.
Many FHA and Conventional loan approvals require very little or no reserves at all; borrowers can literally close a transaction and have almost no money left over.
Jumbo lenders are much more demanding with respect to reserves, with some requiring 18 to 24 months.
As an illustration of how “reserves” influence jumbo qualifications, we recently had a jumbo transaction with a borrower looking to obtain a $1,040,000 loan, and the investor wanted 18 months of reserves. But, for loans under $1 million, the investor only wanted 6 months of reserves. So the borrower actually qualified for more by putting more money down (the extra down payment was offset by the decreased reserve requirements).
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