Big banks can be slow. They may use appraisers that do not know the local marketplace. They do not communicate like a local lender does. And they may be slow to return calls and emails. Below is a note from a client who I followed up with after they chose to use a bank they banked with instead of working with me. They chose the bank because they banked there they thought they’d get special treatment.
Blog Category: mortgages
Cash Reserves Requirements for Jumbo loans can be complicated. Jumbo loans, also called Non-Conforming loans, are loans that do not conform to the Conforming loan limits. Conforming loan limits can be found by clicking here. If you have a loan amount that is higher than the Conforming loan limits, then you have a Jumbo loan. Jumbo loans require that a mortgage borrower has cash reserves. The Jumbo loan cash reserves requirement is different from Conforming loans, in that Conforming loans many times do not require cash reserves at all.
What is cash reserves?
Cash reserves is a certain amount that a lender may require that the borrower has left over after they pay their down payment and closing costs at closing, in reserve.
Different lenders have different requirements for cash reserves for their Jumbo loans. There are requirements for the amount of cash reserves, and there are requirements for the types of cash reserves.
Amount of cash reserves (the below is illustrative as it may vary from lender to lender):
6 months of the PITI (principal, interest, taxes, and insurance) are required in general.
Need 4 months PITI if you are retaining your current primary residence
4 months PITI for each rental property you own
And 4 months PITI for a second home/vacation home that you own
Cash reserves are based on all recurring housing expenses for the subject property and in some cases for other property owned by the borrower. Cash reserves are also cumulative, so if you are buying a new home and have a rental property, per the above, you may need 10 months of cash reserves. Housing expenses, also known as principal, interest, taxes, insurance, and assessments (PITIA), include but are not limited to:
- Principal and Interest (as used in the qualifying payment amount)
- Insurances (hazard, flood, and/or mortgage)
- Real Estate Taxes
- Ground rent/leasehold
- Special Assessments
- Homeowners’ association fees
- Monthly co-op fees
- Any home equity loan or HELOC payment, if applicable
Types of cash reserves:
- Cash accounts (checking account, savings account, money market accounts, CD’s)
- Mutual Funds
- Gift money is usually not allowed to count towards cash reserves
- Retirement accounts may or may not be allowed to count towards cash reserves
Retirement accounts as cash reserves
I have seen lenders go back and forth over the years on allowing retirement accounts, such as 401(k), 403(b), IRA, and TSP; to be used as cash reserves.
When a mortgage lender is considering retirement accounts as cash reserves, they are not suggesting that you must liquidate or borrow against the retirement account to generate cash. Lenders are only considering the balance of the retirement account without having to liquidate any of it or borrow against any of it.
Retirement accounts are not very liquid, and hence they shouldn’t be considered cash, which is why at some points in time I’ve seen lenders not allow retirement accounts to count towards cash reserves requirements.
But currently, as of the date of this blog, we have many lenders we work with that allow retirement accounts to be used as cash reserves. This is an important development because it now allows borrowers to only need to have their down payment and closing costs liquid, but not the cash reserves.
It used to be that when I was qualifying a mortgage borrower and they told me that their student loans were deferred, I could normally count on not using that debt against them in their debt ratios. However, as we all know underwriting guidelines are stricter these days. Now deferred student loans still have to be counted against mortgage borrowers’ debt ratios, even when no payments are being made and they are in deferred status.
Getting mortgages with child support and alimony is difficult. I have people ask me what the requirements are to count alimony or child support income towards qualifying for a mortgage.
First we need a copy of a divorce decree. Or the separation agreement if the divorce is not final. That explains all the terms of any alimony and child support. And any other financial arrangements that may have a positive or negative impact on your mortgage application.
Car loans and mortgages, do they affect one another? When a mortgage lender analyzes your finances to qualify you for a mortgage, they’re looking at all of your debt along with the new proposed mortgage payment. The other debts that they consider outside of your new mortgage payment are debts like minimum credit card payments, car loans, student loans, and any losses from other rental property. They do not look at debts like utility bill payments, car insurance or cell phone bills.
Interest rates rose after the presidential election. The news from the bond market according to MBS Online was “Trump has advocated for greater spending on defense and infrastructure. And at the same time he proposes to cut taxes. These policies raise the prospects for increased deficits and inflation. Neither of which are good for mortgage rates.”1
New home purchasers can get caught up in a wire fraud scam in a mortgage transaction by cyber criminals if they aren’t careful! This type of fraud is happening more often. Some borrowers are fortunate enough to have a bank that recognizes that money is being sent to a suspicious account and the wire gets stopped. Otherwise, the mortgage borrower can lose their entire down payment on the house.