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Reserves

QUICK SUMMARY

Reserves are money you still have after closing, measured in months of the new housing payment, and some programs or findings require them while others do not.

Reserves are the money you'll still have in your accounts after you pay your down payment and closing costs, measured in months of your new house payment. You don't hand reserves to the lender. The underwriter only needs to see that the money exists, that it's yours, and that it's a kind of asset the program counts. Whether you need any, and how many months, depends on the loan program, the occupancy, the number of units, how many other financed properties you own, and the automated underwriting findings. A one-unit home you'll live in often needs none under the agency rules, while two- to four-unit homes, second homes and investment properties usually do.

How reserves are measured

Reserves are counted in months of the full housing payment on the new loan: principal, interest, property taxes, homeowners insurance, mortgage insurance if any, and association dues. That full payment is often called PITIA. Fannie Mae defines reserves as liquid or near-liquid assets available after closing, measured by how many months of that payment you could cover, with funds to close subtracted first (Selling Guide B3-4.1-01).

The underwriter adds up the eligible assets you'll have left, applies any reductions the program requires for certain accounts, and divides by the monthly payment. If you own other financed properties, some programs require additional reserves based on those properties too.

Where reserve requirements come from

There are three layers, and it helps to know which one is asking:

  • The agency or program rule. Some programs set minimums for certain loans, like two- to four-unit homes, second homes or investment properties.
  • The automated findings. Desktop Underwriter, Loan Product Advisor or FHA's TOTAL Scorecard may require reserves based on the overall risk of the file, and the findings state the amount.
  • The lender or investor. A lender or investor can set its own requirements on some products. On specialty and non-QM loans, the investor's guide sets them.

The rules by loan type

Conventional (Fannie Mae)

For loans run through DU, Fannie Mae's minimums are (B3-4.1-01):

  • No minimum for a one-unit principal residence.
  • Two months for a second home.
  • Six months for a two- to four-unit principal residence, an investment property, or a cash-out refinance with a debt-to-income ratio over 45 percent.
  • Extra reserves for other financed properties when the new loan is on a second home or investment property: 2 percent of the combined unpaid balances on those other properties if you have one to four financed properties, 4 percent for five to six, and 6 percent for seven to ten (DU only). Mortgages on the subject property and your principal residence aren't counted in that total.
  • Reserves equal to the balance of any 30-day accounts, like a charge card you pay in full each month.
  • Additional reserves if DU's overall risk assessment calls for them.

For manually underwritten conventional loans, the minimums are in Fannie's Eligibility Matrix. Freddie Mac has its own rules in its Guide.

FHA

HUD defines reserves as your verified liquid assets minus the funds you need to close, and they can't include cash from a cash-out refinance, equity in another property, or borrowed funds (HUD 4000.1 II.A.4.d and II.A.5.c).

  • Loans approved through TOTAL Scorecard: three months of payment after closing on a three- or four-unit property.
  • Manually underwritten loans: one month on one- or two-unit properties and three months on three- or four-unit properties, and gift funds don't count toward reserves.
  • Reserves as a compensating factor on manual files: at least three months of payments for one or two units, or six months for three or four units, calculated without gifts or borrowed funds.

These reserve rules aren't new. They read the same in Update 17 of HUD's handbook, the version in effect today, and in Update 18, which lenders must use by Nov 10, 2026.

VA and USDA

VA's underwriting focuses on residual income, the money left each month after debts and estimated living costs, which is a different test from reserves. VA and USDA files can still carry reserve conditions from the automated findings or the lender, and reserves can strengthen a file. I'll tell you what your findings actually require.

Non-QM loans

Bank statement, DSCR and other non-QM programs set their own reserve requirements, and reserves are often a bigger part of the decision than on agency loans. Some of them count assets differently too. Requirements vary by investor and loan structure.

What counts

Reserves need to be documented, and the underwriter has to see that the money is yours and reachable. Common eligible assets:

  • Checking and savings accounts.
  • Money market accounts and certificates of deposit.
  • Stocks, bonds and mutual funds. Some programs count these at a reduced value.
  • Vested retirement accounts like a 401(k) or IRA. Fannie Mae lists the vested amount as acceptable. FHA counts up to 60 percent of the value, less any loans against it, unless you show that more can be withdrawn after taxes and penalties.
  • The cash value of a vested life insurance policy.
  • Gift funds, on some programs. Fannie Mae allows eligible gift funds (not gifts of equity) toward reserves; FHA manual underwriting doesn't count gifts. See gift funds.

Each account is documented with recent statements, all pages. Large recent deposits into an account used for reserves need to be sourced, just like down payment money. See large deposits.

What doesn't count

  • Money going to closing. The same dollars can't be both cash to close and reserves.
  • Unvested retirement funds or stock options, and funds you can only withdraw at retirement, job loss or death.
  • Stock in a company that isn't publicly listed, under Fannie's rules.
  • Borrowed money. A personal loan or cash advance deposited into savings is a new debt, not a reserve.
  • Seller or other interested party contributions and lender credits.
  • Cash from a cash-out refinance on the home you're refinancing.
  • Personal property like cars or jewelry, and cash that hasn't been deposited.
  • Equity in another property, unless it's converted to cash through a sale or loan.
  • Business funds, unless the program's rules for business assets are met.

Proceeds from selling your current house can count once that sale has closed and the money is deposited.

Reserves and the rest of the file

Reserves are a stock of savings. Residual income is a monthly leftover. A file can need one, both or neither. Reserves can also help: in automated underwriting, more reserves can strengthen a file with a higher debt ratio or a lower score, and in manual underwriting they can be a compensating factor. Keeping more in savings instead of putting all of it toward the down payment sometimes produces a stronger file, even though the loan amount is slightly larger. That trade is worth running both ways.

How the underwriter verifies the money

Statements have to show your name, the account number, the institution, the statement period and the ending balance. Screenshots and transaction printouts are often rejected. Full PDF statements from the bank are the usual standard, and some lenders verify directly through the bank or an asset verification service you authorize.

Joint accounts with someone who isn't on the loan raise questions, and some programs want a letter from the other owner confirming your access. If the file takes a while, the underwriter may ask for newer statements and measure reserves again. Moving money out after approval for a car, furniture or moving costs can drop the file below its requirement. Spend after closing, or ask first.

Texas and Fort Worth notes

In Tarrant County, property taxes are a large part of the payment, so the same savings cover fewer months of reserves than on a home with lower taxes. Your reserves are measured against the full payment, including the escrowed taxes and insurance, not just principal and interest.

Fictional example

This example is made up to show how reserves are counted.

Kendra is buying a fourplex in Fort Worth to live in one unit, with a conventional loan through DU. She has $62,000 in savings and a 401(k) with a vested balance of $40,000. The cash she needs to close totals $48,000, leaving $14,000 in savings. DU requires six months of reserves for a two- to four-unit principal residence, and her remaining savings cover only about four months of her full estimated payment. Her vested 401(k) balance is an acceptable reserve source under Fannie's rules, so with it counted the file meets the requirement without her withdrawing anything. If she'd used FHA instead, TOTAL would require three months after closing on a fourplex, and FHA would count up to 60 percent of the 401(k) unless she showed more could be withdrawn.

Common mistakes and myths

  • "Reserves are paid to the lender." They stay in your account.
  • "I'll borrow money to show reserves." Borrowed funds don't count, and the new debt hurts your ratios.
  • "My 401(k) doesn't matter because I won't touch it." Vested retirement funds can count, sometimes at a reduced value.
  • "Every loan needs two months." There's no universal number. A one-unit principal residence often needs none under the agency rules.
  • "I can buy furniture after approval." Spending before closing can break the requirement.
  • "Investors only need reserves on the new house." Fannie Mae adds reserves for your other financed properties on second home and investment purchases.

What to have ready

  • Recent statements, all pages, for every checking, savings, brokerage and retirement account.
  • The most recent retirement statement showing the vested balance and any loans.
  • Source documents for any large recent deposits.
  • A list of other properties you own with their loan balances and payments.
  • If you're selling a house, the expected closing date and estimated net proceeds.

Next step

Not sure whether you'll have enough left after closing? Let's lay out what you have, what goes to closing and what's left, against the program your file will likely use. Schedule a call, or when you're ready, start an application.

Related questions

Sources

Links checked Oct 21, 2026.

About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.

Equal Housing Opportunity.

Last reviewed: Oct 2026

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McKade Lively, NMLS #2704474. Equal Housing Opportunity.