If you are shopping for a jumbo mortgage, you will quickly hear the word "reserves." Lenders want to know not only that you can make the down payment and pay closing costs, but also that you will still have money left afterwards. That leftover cushion is measured in "months of reserves," and on larger loans the requirement can be a deciding factor in approval.
What "months of reserves" means
Reserves are measured against your new monthly housing payment, usually including principal, interest, property taxes, homeowners insurance and any homeowners association dues (often abbreviated PITIA). If that full payment is a certain amount, one month of reserves is simply that amount in eligible assets remaining after closing. A lender asking for several months of reserves wants to see several times that payment still available to you once the purchase is complete.
Because Texas has relatively high property taxes, the escrowed tax portion can make the monthly payment larger than buyers expect, which in turn raises the dollar value of each "month" of reserves.
Why jumbo lenders care so much
Jumbo loans are larger than the conforming limits used by Fannie Mae and Freddie Mac, so they are generally not sold to those agencies. Many are held by the lender or sold to private investors, who set their own guidelines. With larger balances and no agency backing, reserves act as evidence that a borrower can keep paying through a job change, a medical event or a temporary drop in income. The requirement often rises with the loan amount, the number of properties you own and how other parts of your profile look.
Which assets usually count
- Checking and savings accounts and money market accounts, typically counted in full.
- Stocks, bonds and mutual funds in taxable brokerage accounts, often counted at a discount to allow for market swings.
- Retirement accounts such as 401(k)s and IRAs, frequently counted at a reduced percentage to account for taxes and early-withdrawal penalties, and only the vested portion.
- Cash value of life insurance, in some programs.
Assets that usually do not count include money borrowed against other property unless specifically allowed, funds you cannot document, cryptocurrency in many programs, and gift funds where a lender's rules exclude them from reserves. Each lender publishes its own treatment, so ask for it in writing.
How lenders verify reserves
Expect to provide recent statements, commonly the latest two months, for every account you want counted. Underwriters review them for large deposits that are not from your regular pay. Any unusual deposit may need a paper trail: a sale of a vehicle, a bonus, a transfer from another account you own. Moving money around shortly before applying can create more questions, so it is better to keep funds where they are and document them.
Retirement and stock accounts
If you plan to use investment accounts to meet reserves, you usually do not need to sell or withdraw anything; the lender only needs to see that the assets exist. If you do liquidate investments for the down payment, keep the sale confirmation and the statement showing the deposit.
Preparing before you apply
- Estimate your full monthly payment, including Texas property taxes, insurance and HOA dues.
- List every account, its current value and whether it is liquid, invested or in a retirement plan.
- Ask each lender how it counts each type of asset and how many months it requires for your loan size.
- Avoid large unexplained deposits or new debts while your application is in process.
- Keep complete, unaltered statements with every page included.
Bottom line
Reserves are the money you still have after closing, expressed as months of your new housing payment. Jumbo lenders often weigh them heavily, and they count different assets in different ways. Knowing your numbers and documenting your accounts early makes the conversation with a lender much easier.
This article is general information, not mortgage, legal or financial advice. JumbTX is not a lender or mortgage broker. Requirements vary by lender and loan program, so confirm details with a licensed loan officer and check the CFPB at consumerfinance.gov.