Reserves
Liquid funds you must demonstrate after closing — not applied to the down payment or closing costs. Measured in months of PITI. Conventional loans often require 2 months; non-QM programs commonly require 6–18 months. Having reserves well above the minimum is one of the strongest compensating factors available.
How it works in practice
Reserves are counted in months of your full housing payment (PITI): $3,000 of PITI and $18,000 of eligible funds is six months of reserves. Requirements scale with risk — conventional primary residences may need zero to six months, jumbo loans typically want six to twelve, and non-QM programs commonly ask six to eighteen, with investment properties layering more per additional financed property.
Eligibility has haircuts, like every asset test. Checking, savings, and brokerage funds count fully or nearly so; retirement accounts usually count at 60–70% of balance to allow for taxes and penalties; funds that arrived unexplained recently may not count until sourced and seasoned (typically two months of statements). Business cash is program-dependent — some lenders count a proportionate share for a business owner, others exclude operating funds entirely.
Reserves punch above their weight for self-employed files. They are the compensating factor underwriters cite most when approving elevated DTIs or shorter self-employment histories, because months of cushion directly answer the underwriting question — can this borrower absorb a slow quarter? Bringing more than the program minimum is one of the few file improvements entirely in your control at application time.
Common questions
Do reserves have to sit in cash?
No — they must be documentable and accessible, not idle. Brokerage accounts and (with haircuts) retirement funds qualify at most lenders. What matters is statement evidence that the funds exist, are yours, and aren't borrowed.
Can I count my business account as reserves?
Sometimes, partially. Lenders that allow it usually want your CPA to confirm withdrawing the funds won't harm the business, and may credit only your ownership share. Ask each lender — treatment varies widely.
Related terms
- CPA letter — A signed statement from a licensed CPA confirming business type, continuity of operation, or ownership percent…
- LTV (Loan-to-Value Ratio) — Loan amount divided by the appraised property value. A $320,000 loan on a $400,000 home is 80% LTV. Lower LTV…
- CLTV (Combined LTV) — Total of all liens on the property (first mortgage + any HELOCs or second mortgages) divided by property value…
- Pre-approval — A conditional commitment from a lender based on a full review of your income documents, assets, debt obligatio…
- Pre-qualification — A preliminary, informal estimate of how much you might borrow, usually based on self-reported information with…
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Sources
Educational definition only — not financial, legal, or tax advice. Programs and limits change; verify current terms with a licensed professional.