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I am being told by my mortgage lender that I will need 18 months worth of reserves to qualify for a conventional jumbo mortgage. I am a first time buyer with a credit score of 740. I have limited credit history as I have only lived in the US for two years (which has also contributed to my (relatively) low score). I have no history of delinquency or any black marks on my credit. The mortgage amount is about 2.5 times my annual pre-tax income. I have a pretty conventional income with a small bonus component of about 15%. I have 8 years continuous employment with the same company. Principal-interest-tax-insurance each month will be about 29% of my monthly pre-tax base income (i.e. excluding bonus). I have no debts at present and the LTV on the mortgage will be 80%.
I am absolutely blown away by such a high reserve requirement. It amounts to more than half of my 50% downpayment. The highest i have ever heard of is 6 months. The one "risk" factor in my application from the bank's perspective, aside from the admittedly limited credit history, is that gift money represents about half of my down-payment, but does that really result in an 18 month reserve requirement?
I have told the lender that I will shop elsewhere and he is guaranteeing me that any lender following Fannie and Freddie guidelines will turn me down for a conventional mortgage without 18 months of reserves. I am assuming he is blowing smoke up my ass, but i am just curious as to whether anyone agrees with him.
Last edited by Jambo2012; 08-27-2012 at 03:28 PM..
Well, unless you have an extremely large mortgage and income, I think it's a wise idea regardless of whether your lender requires it or not. Home ownership is no joke - you want to have some reserves on hand.
If you took out a 300K loan (so say 375,000 house), that's $1390/mo, and 18 months of reserves is 25 grand. I personally wouldn't feel comfortable without something like that in assets for a house like that.
If you only had a $150K loan, well then 12 grand is cutting it extremely close.
It's a decent size jumbo mortgage and I have a proportionately decent size income to match it. I will have seven months of reserves after all closing costs are paid, and the ability to build an additional five months of reserves by the end of the year once bonuses are paid. I have very secure job prospects over the near to medium term. I am really not concerned about my financial situation – just my ability to convince this bank to give me a mortgage without them insisting on a crippling reserve requirement.
It sounds to me like you are looking at homes that are priced beyond what you can actually afford.
How did banks and the real-estate market get into trouble in the first place?
By lending to people who had no business buying at the level they were buying.
Easy money equals real-estate bubble.
Im in favor of bank requirements that ensure that buyers can actually afford the homes they want to buy.
Gift money down payment and low reserves do not sound like a good risk.
Keep saving your money, or buy a less expensive home.
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.
Last edited by Jambo2012; 08-28-2012 at 10:47 PM..
Based on your last post, I would gather that the reason your bank is asking for that much cash in savings is due to the amount of the loan. Yes, you have a good income and steady employment, good credit, etc..but an 800K mortgage is almost a million dollar mortgage.. that's a lot of money and with a $300K salary, I would feel comfortable scrambling together a 200K downpayment and getting into a house that costs only $500K so that my mortgage loan would only be 300K...but that's just me...I am not surprised at all that the bank wants to see 18 months of cash in reserves. They have every right to be concerned when underwriting such a large amount...why not buy a house outright in cash and not bother with a mortgage?? Just food for thought.
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?
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