Cash reserves are the money you still have in the bank after you pay your down payment and closing costs. Lenders look at reserves as a safety cushion that shows you can keep paying if life throws a curveball.
How reserves are measured
Reserves are usually counted in months of mortgage payments. If your full payment is 2,000 dollars and you have 12,000 dollars left after closing, that is six months of reserves.
When they are required
- Jumbo loans often require several months of reserves
- Investment properties usually require reserves
- Some borrowers with lower credit or higher debt may need them
What counts
Checking and savings count, and so do many retirement and investment accounts, often at a portion of their value. The goal is to show money you could reach if you needed it.
Even when reserves are not required, having them can strengthen a borderline application and give you breathing room after you move in.