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How Your Savings Impact Your Ability to Get a Home Loan

Written by:  

Patrick Boyaggi

Patrick Boyaggi

Patrick Boyaggi

CEO an Co-Founder

Patrick is the Co-Founder and CEO of Own Up. He has a wealth of experience and knowledge as a mortgage executive.

See full bio

Gingerbread looking strange houses

Liquid reserves are those financial assets that are available to you after your loan closes. Liquid financial reserves include cash and other assets that are easily converted to cash by the borrower.

Examples of liquid financial assets that can be used for reserves include:

  1. Checking or savings accounts;
  2. Investments in stocks, bonds, mutual funds, certificates of deposit, money market funds, and trust accounts;
  3. The amount vested in a retirement savings account; and
  4. The cash value of a vested life insurance policy.

What You Need to Know

Calculating Reserves:

The specific calculation is the total amount of liquid assets remaining after the loan transaction closes divided by your monthly mortgage payment including taxes and insurance. For example, if you have $20,000 in reserves an your monthly payment is $2,000, then you have 10 months worth of reserves.

Unacceptable Sources of Reserves

The following cannot be counted as part of the borrower’s reserves:

  • Funds that have not been vested;
  • Funds that cannot be withdrawn under circumstances other than the account owner’s retirement, employment termination, or death;
  • Stock held in an unlisted corporation;
  • Stock options and non-vested restricted stock;
  • Personal unsecured loans;
  • Cash proceeds that will be the result of a cash-out refinance

The total amount of reserves required per transaction is determined by the perceived riskiness of the loan. The criteria used to determine risk includes, but is not limited to the transaction type, number of units, loan-to-value ratio, credit score and DTI.

Liquid Reserve Requirements range from 0 months up to 12 months depending on the mix of the aforementioned criteria. As a rule of thumb, you should expect to be required to have at least 3 months in reserves to qualify for a loan.

Higher amounts of liquid reserves are considered more favorable than lower amounts or no reserves. Research has shown that mortgages made to borrowers with higher amounts of liquid reserves tend to have lower delinquency rates.

Typically, primary residences have the lowest reserve requirement, second homes have the second highest requirement and investment properties have the highest requirement. The final number, however, is determined by the lender. Most lenders determine the exact amount by using a quantitative modeling tool provided to them by Fannie or Freddie.

See What You Qualify For

See What You Qualify For


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The information provided to you in Own Up blog is intended to be for general informational and educational purposes only and does not constitute legal or tax advice. This blog is not a substitute for obtaining legal or tax advice from a qualified professional. The views and opinions expressed on this blog are solely those of the authors and do not necessarily reflect the official policy or position of Own Up or describe Own Up's business model. Own Up makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.