You've saved for the down payment and closing costs, but your lender also wants proof you'll have cash left over after the wire clears. That's the reserve requirement—a cushion measured in months of principal, interest, taxes, and insurance (PITI) that must remain accessible post-closing.
What counts as a reserve
Reserves must be liquid or near-liquid. Checking and savings accounts count dollar-for-dollar. Retirement accounts like 401(k)s and IRAs typically count at 60–70 percent of vested balance to account for early-withdrawal penalties and taxes. Stocks and mutual funds in taxable brokerage accounts usually count at full value if they can be liquidated quickly. Equity in other real estate, business assets, and cryptocurrencies generally do not count. Gift funds used for down payment or closing costs cannot double as reserves—you need separate, seasoned money.
How many months lenders require
Conventional loans for primary residences often require two months of PITI in reserves, though some programs allow zero reserves for strong borrowers with low loan-to-value ratios. Investment properties typically require six months, sometimes more if you own multiple financed rentals. Second homes fall somewhere in between—commonly two to four months.
Jumbo and Non-QM loans impose stricter reserve floors. A jumbo borrower might need six to twelve months for a primary residence, and twelve to eighteen months for an investment property. Non-QM programs—bank-statement loans, DSCR loans, foreign-national products—routinely require twelve months or more because the underwriting relies less on traditional income documentation.
If you're financing multiple investment properties simultaneously, expect the requirement to stack: each additional financed rental may add another six months to the total reserve target.
Why the requirement exists
Reserves are a shock absorber. Job loss, major repair, tenant vacancy, or a surprise tax bill can all strike in the first year of ownership. Lenders want confidence you can cover six mortgage payments—or twelve, or eighteen—without immediately defaulting. The requirement also signals financial discipline: a borrower who closes with healthy reserves likely manages cash flow carefully and is less prone to overextension.
From the Alliance perspective, reserve requirements are a feature, not a bug. They force honest budgeting before you sign. If meeting the reserve floor feels uncomfortable, the loan may be too large or the timing premature.
The Alliance take
Plan for reserves early. Add the reserve requirement to your down payment and closing-cost estimate, then confirm what accounts your lender will accept. If you're short, consider a smaller loan amount, a less expensive property, or waiting a few months to rebuild liquidity. A thin reserve cushion invites stress; a thick one buys peace of mind and negotiating leverage when life happens.
Ready to model reserve requirements for your scenario? Start an application and we'll walk you through the math.