Mortgage reserve requirements (payment, buy, needed, divorce)

[snowdenscold]

Well in my original post, I didn't know you were taking out such a large mortgage, so that changes things a bit. (obviously your income and loan amount are not average like I assumed - your use of 'conventional income' threw me a bit)

My point was that 7 months reserves isn't very much if you only had a $150K loan, since that's only about 5 grand at current interest rates. Obviously owning a home and having 5 grand in liquid assets could be potentially disastrous (e.g., A/C breaks down). Having 90 grand is a different story, since major repairs constitute a much smaller percentage of your reserves.

[tigger37708]

Originally Posted by Jambo2012

I really just wanted to hear other people's experience with this. Thank you to the person who has tried to address the question. To those delivering lectures, I apologise for launching my one-man effort to maintain the financial crisis but I am happy to have given you an opportunity to talk down. I am actually not financially irresponsible. I earned 330k last year and will earn 360k this year. The mortgage is 800k. As mentioned, I can have seven months reserves at close, with an additional 5 months by year end. For personal reasons completely unrelated to my financial responsibility which i dont wish to share here I have struggled to put together the deposit without the help of gift money but the circumstances giving rise to that have now passed. I have two young children and want to give them a home. I earn 15k per month after tax and piti will be 6400. Withiut even taking bonus into account I consider that mortgage quite affordable (and i am trying to claim that i am extraordinarily warlthy or risk free - i am simply addressing the questio raised as to whether this a mortgage i can afford). It is about what I have paid in rent for 2 years. I really have no idea why I am explaining myself any further but there you go. I posted here because here because, as mentioned, I am relatively new to the US and didn't have experienced friends or family to turn to. So i am little disappointed with the tone of the responses.

I accept your apology for single highhandedly trying to prolong the financial crisis.
But Good Grief!
To not have a huge down payment, with that kind of Income, you must be spending like a drunken sailor.
Did somebody actually give you a hundred thousand dollars that you don't have to pay back as stated in the Gift letter?
If so you have most generous friends and relatives.
but no matter.
I still think the Bank is calling it right.
you need more reserves.

[Mr. Zero]

I've also found this to be case when dealing with large loan values. I've been told that while lenders are usually flexible on where the down payment comes from (gifts allowed), the reserves MUST come from your own assets (savings, stocks, etc.).

Originally Posted by Jambo2012

Sure, I am not arguing the rights or wrongs of their position. I fully understand why they are taking this position and the bank in question navigated the financial crisis very well, so they are clearly on to a winner. For those interested, what I am starting to find based on speaking to brokers and various banks is that at this end of the market the reserve requirements are indeed strict but there is a spectrum, and some banks favor very high reserves but are more relaxed on debt to income ratios, whereas for others the opposite is true. I have to say, I would have thought somewhere between the two makes sense. Call me a cynic, but how many of these "reserves" get quickly turned into remodelled kitchens within a few months of closing?

[mdcrim]

The banks probably figure that, with a $300k+ annual income, a person should have some substantial liquid assets. It might raise red flags if they don't.

[TimtheGuy]

Originally Posted by Mr. Zero

Yup. No 401k, IRA. Non-retirement trading accounts were ok.

For conforming loans (loan amounts of $417k or less), retirement accounts DO count as reserves, but you can only use 70% of the current balance.

[Debsi]

Originally Posted by TimtheGuy

For conforming loans (loan amounts of $417k or less), retirement accounts DO count as reserves, but you can only use 70% of the current balance.

Retirement accounts are counted at 60%.

[TimtheGuy]

Originally Posted by Debsi

Retirement accounts are counted at 60%.

60% is for FHA. Conventional is 70% (Freddie Mac).

[Debsi]

Originally Posted by TimtheGuy

60% is for FHA. Conventional is 70% (Freddie Mac).

We sell more to Fannie. They changed their conventional rule on these accounts to 60% in 2010 or 2011 I believe.

Found it.. Fannie Mae guide B3-4.3-03, Retirement Accounts (05/24/2011)

To account for withdrawal penalties and estimated taxes, lenders must include only 60% of the vested amount in its determination of the borrower’s available reserves. If the retirement account only allows withdrawals in connection with the borrower’s employment termination, retirement (unless the borrower is of retirement age), or death, the lender must not consider the vested funds as effective reserves.

Usually as one goes, so goes the other, but I did look up Freddie too and it appears Tim is right that they still allow 70% of retirement balances to be used.

[Jambo2012]

Originally Posted by tigger37708

I accept your apology for single highhandedly trying to prolong the financial crisis.
But Good Grief!
To not have a huge down payment, with that kind of Income, you must be spending like a drunken sailor.
Did somebody actually give you a hundred thousand dollars that you don't have to pay back as stated in the Gift letter?
If so you have most generous friends and relatives.
but no matter.
I still think the Bank is calling it right.
you need more reserves.

Sincere thanks to those who have offered constructive responses, but a wise friend once told me that as soon as you engage in an argument with someone online (and I imagine he had in mind someone who is baselessly suggesting that you are engaging in mortgage fraud), you've already lost deep down in your soul where your self-respect resides... so with that, farewell, I'm out.

[cleasach]

It's hilarious when people post vague information here and then get all offended, throw a tantrum and storm off when replies aren't what they want to hear.