Fannie Mae is requiring additional reserves when a borrower has more than one financed property. The amount of reserves is based on a percentage of the unpaid principal balance (UPB). Reserves are liquid funds that you have access to. Reserves are funds you need to have after closing your transaction. Funds for reserves cannot be your funds for down payment or closing cost.
If a borrower has 2-4 financed properties, the reserves of 2% of the unpaid principal mortgage balances are required, excluding the principal residence and the subject property.
If a borrower has 5-6 financed properties, 4% of the unpaid principal mortgage balances are required, excluding the principal residence and the subject property.
If a borrower has 7 to 10 financed properties, 6% of the unpaid principal mortgage balances are required, excluding the principal residence and the subject property.
The subject property will still have monthly reserve requirements based on the total mortgage payment (PITI).
Standard Fannie Mae reserve requirements based on property type are:
- 2 months PITI for second homes/vacation property with credit (up to 12 months with riskier credit profiles)
- 6 months PITI for investment property (up to 12 months with riskier credit profiles)
- 0 months PITI for primary residence – 1 unit dwelling for purchases and refinances. Up to 6 months of PITI for reserves depending on the credit profile. 2-4 unit properties require additional reserves.
Here is one of the examples Fannie Mae has provided to illustrate reserve requirements for a borrower with multiple financed properties.
Documenting reserves is nothing new. Be prepared to provide complete asset statements to your mortgage originator to document the additional assets required for your transaction.
Freddie Mac currently has different guidelines than Fannie Mae.
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