What are “Reserves” when it comes to Jumbo Mortgage Loans?
To qualify for most Jumbo Mortgages you must have “Reserves”. Well, what are they?
Quite simply they are funds that you will have left over after the down-payment and closing costs. This shows the lender that you will be able to make the payment (PITI) for a certain number of months after closing.
What Type of Funds can be used for Reserves on a Jumbo Mortgage?
For most Jumbo loans any type of “liquid” funds are acceptable as long as they can be sourced or seasoned. Sourced simply means having an available paper-trail , seasoned means the funds were in the account before the oldest statement provided.
- Checking – checking account funds are usually counted at 100% of the balance
- Savings – savings accounts are usually counted at 100% towards reserves
- 401k or IRA – These funds are commonly used. Typically the lender will count 60%-70% of the “Vested Balance” towards reserves. Some Jumbo mortgage programs will use 85% or even 100% .
- Stocks – Typically lenders will use 70% towards reserves, but it varies from investor to investor
Do I have to Pay the Reserves to Someone for a Jumbo Loan?
Reserves are almost never paid out to the lender to keep. The exception to this is your tax and insurance “impound account” , which is part of your closing costs. Beyond this you only need to show that you have the reserves by the time of final approval. After the loan approval you can do as you wish with the funds.
Why do they ask for reserves on Jumbo Loans but not often on Conforming Loans?
Jumbo mortgages are bought on the secondary market by investors. These investors will typically be more conservative than govt backed Fannie Mae or Freddie Mac. Conforming loans will often not require reserves or only a few months for a primary home. For investment properties, there may be substantial reserves required.