Cash Reserves For Homeowners

Cash Reserves For Homeowners Mortgage Guidelines

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article Is About Cash Reserves For Homeowners Mortgage Guidelines

There are many more benefits to being a homeowner versus a renter for those who are planning on not relocating in the next three to five years. Home Buyers can qualify for mortgages with bad credit and high debt to income ratios. There are times where the Automated Underwriting System will require Reserves For Homeowners. Non-QM Loans and bank statement loans for self-employed borrowers require reserves.

Cases Where Reserves For Homeowners Are Required

Low Credit Scores

Automated Underwriting System will state whether borrowers require reserves on government and conventional loans.
This is especially the case for mortgage loan applicants with the following:

  • Low Credit Scores
  • Prior outstanding collections and charge-off accounts.
  • Late Payments after bankruptcy and/or foreclosure
  • High debt to income ratios
  • Purchase of multi-unit properties

Buying Versus Renting

There are many benefits of buying a home versus renting a home.

  • Home Buyers can qualify for a mortgage loan with little money down and can have low credit scores

Having Reserves For Homeowners is considered as a compensating factor under the eyes of a mortgage lender.

  • In many cases, a renter can convert to being a homeowner with very little money down
  • Their monthly housing payments can be the same as being a renter and in some cases
  • Their housing mortgage payment can be lower than their monthly rent payments
  • Another major advantage of being a homeowner versus a renter is that the homeowner has the potential of accumulating equity in their home as time passes
  • This is because a portion of their mortgage payment gets applied towards principal
  • Home prices have dropped to historic lows due to the real estate and credit meltdown of 2008
  • Home values have been recovering since 2011
  • Chances of appreciation are on the homeowners favor if they buy homes at today’s low values
  • There are many parts of the country where home values are consistently increasing year after year
  • One major disadvantage of being a homeowner is that homeowners need to maintain their home
  • They no longer have landlords to depend on when things like furnaces, air conditioners, appliances, and fixtures break down, you as a homeowner are responsible for the repairs

Cash reserves for homeowners are highly recommended whether the lender requires it or not.

Certain Loan Programs Require Cash Reserves For Homeowners

Besides government and conventional loans, there are other loan programs where lenders will require Cash Reserves For Homeowners. First Time Home Buyers purchase mortgage loans, bad credit home loans, high debt to income ratio mortgage loans, regular conventional and standard mortgage loans may require Cash Reserves For Homeowners if AUS requires it. The majority of lenders do not require cash reserves for homeowners unless required on Automated Underwriting System. Condotel lenders will definitely require cash reserves for homeowners. Non-QM Lenders and Jumbo Lenders will most likely require it.

Cash Reserves Required For Portfolio Condotel Financing

Certain Loan Programs Require Cash Reserves For Homeowners

A condotel mortgage lender will require one-year cash reserves for homeowners. The cash reserves for homeowners include principal, interest, taxes, insurance, homeowner association dues, and other monthly housing fees. Condotel lenders require that the cash reserves for homeowners be at least three months in cash:

  • The remaining nine months in liquid assets such as stocks, bonds, and/or retirement accounts

Cash Reserves For Homeowners Always Recommended Even Not Required By Lenders

For other lenders, cash reserves for homeowners are normally required but I strongly suggest that homeowners have a cash reserve fund for their own protection. Homeowners who live in the Midwest or places with cold winters can have furnaces go out during the middle of winter. These repairs may cost several thousand dollars. Well and septic can break down. These breakdowns can cost thousands of dollars.

Home Inspection

A home inspection is highly recommended. Home Inspections are not required by lenders. However, a few hundred dollars spent on a home inspection is well worth its money.

  • Electrical, plumbing, and heating/air conditioning mechanicals can be quite costly to repair
  • Homebuyers will want to avoid is purchasing a home that has signs of problems with high ticket items

Appliances and well and septic systems will cost thousands of dollars for repairs.

How Lenders Require Cash Reserves For Homeowners

Lenders Require Cash Reserves For Homeowners

Reserves cannot be gifted. It needs to be the borrower’s own funds. Again, Automated Underwriting System and/or lenders will require cash reserves from borrowers who pose a higher risk factor. Home Buyers who have further questions on this topic, please contact us at Gustan Cho Associates at 1-800-900-8569 or text us for a faster response. Or email us at

Related> Reserves For First Time Home Buyers

Related> Why Do Lenders Require Reserves?

Related> Reserves For Homeowners

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