Reserves
Liquid funds required by the lender to be available after closing, typically measured in months of PITIA.
Definition
Reserves are liquid or near-liquid assets that a borrower must document after accounting for the down payment and closing costs. Lenders require reserves to ensure the borrower can cover mortgage payments during vacancy or unexpected expenses. Reserves are typically measured in months of PITIA — for example, 6 months of reserves on a $2,500 PITIA payment means you need $15,000 in accessible funds. Qualifying assets for reserves usually include checking and savings accounts, stocks and bonds, retirement accounts (typically counted at 60-70% of value), and other investment properties' equity. Larger or riskier loans may require 12 months or more of reserves.
How This Relates to DSCR Loans
DSCR lenders typically require 6-12 months of PITIA reserves. Higher reserves can offset other risk factors like lower DSCR or higher LTV, and some lenders offer rate improvements for excess reserves.
Related Terms
PITIA
The total monthly housing payment: Principal, Interest, Taxes, Insurance, and Association dues.
Underwriting
The process by which a lender evaluates the risk of a loan application before approving it.
LTV (Loan-to-Value)
The ratio of a loan amount to the appraised value of the property.
Closing Costs
Fees and expenses paid at the closing of a real estate transaction beyond the purchase price.
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