Cash reserves are the silent deal-killer. A borrower can qualify on income and credit but fail on reserves. Understanding what counts, what does not, and how much each program requires prevents late-stage surprises.
What Counts as Reserves
- ✦Checking and savings accounts: 100% of verified balance
- ✦Money market accounts: 100% of verified balance
- ✦Stocks, bonds, and mutual funds: 70% of the vested market value
- ✦401(k), IRA, and other retirement accounts: 60% of the vested balance
- ✦Roth IRA contributions (cost basis, not earnings): up to 100% if the borrower is under 59.5
- ✦Vested stock options: 70% of the after-tax value
- ✦Business accounts for self-employed borrowers: typically allowed only with documentation that the withdrawal does not harm the business
What Does Not Count as Reserves
- ✦Equity in the subject property
- ✦Equity in other real property (unless converted to cash at closing and documented)
- ✦Unsecured borrowed funds
- ✦Cash advances from credit cards
- ✦Proceeds from a recently opened HELOC
- ✦Down payment assistance funds after they have been applied
Reserve Requirements by Program
Conventional primary residence: DU and LP typically require two months PITI; risk layering can increase this. FHA: no minimum reserve requirement for 1-2 unit primary residences; three months required for 3-4 unit. VA: no specific VA guideline reserve requirement, though lenders impose overlays. USDA: no specific reserve floor in USDA guidelines. Investment property conventional: six months PITI on the subject; additional reserves required if the borrower has multiple financed properties. Jumbo: typically six to twelve months PITI; some programs require a post-close liquidity minimum as a dollar amount.
Aria can calculate reserve requirements for any scenario including multiple financed properties and confirm which asset types qualify under specific programs. Ask at vicariointel.com.
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