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Mbanc NMLS #38232 | Equal Housing Opportunity Lender
The Reserve Requirement Schedule
Reserves are liquid assets you must demonstrate you will still have after closing â after your down payment and closing costs clear. They are expressed in months of PITIA (principal, interest, taxes, insurance, and association fees if applicable).
Mbanc’s reserve requirement by LTV and loan amount:
| Scenario | Reserve Requirement |
|---|---|
| LTV at or below 80% | 3 months PITIA |
| LTV 80.01% to 85% | 6 months PITIA |
| Loan amount above $1,500,000 | 9 months PITIA |
| Loan amount above $2,500,000 | 12 months PITIA |
These requirements stack based on whichever is most restrictive. If your LTV is 82% (requiring 6 months) and your loan is $1,800,000 (requiring 9 months), the 9-month requirement governs.
How to Calculate Your Required Reserves
First, determine your PITIA. This is the fully loaded monthly payment including:
– Principal and interest (based on loan amount, rate, and term)
– Property taxes (monthly escrow amount)
– Homeowners insurance (monthly escrow)
– HOA or association fees if applicable
– Flood or special insurance if applicable
Example PITIA calculation:
– Loan: $800,000 at 8.25%, 30-year fixed
– Principal + interest: $6,019/month
– Property taxes: $800/month
– Insurance: $200/month
– HOA: $350/month
– Total PITIA: $7,369/month
At 85% LTV (6-month reserve requirement): $7,369 Ã 6 = $44,214 in required reserves after closing.
What Counts as Reserves
Eligible reserve sources:
– Checking and savings accounts
– Money market accounts
– CD accounts (even if not yet matured, with documentation)
– Investment accounts (stocks, bonds, mutual funds â at 70% of account value to account for liquidation costs)
– Retirement accounts (IRA, 401k â at 60% of vested balance)
– Business accounts (with documented ownership and access)
Ineligible reserve sources:
– Gift funds (reserves must come from the borrower’s own assets)
– Funds being used for down payment (reserves are separate from and in addition to down payment)
– Funds needed for closing costs
– Unsourced large deposits (within the 30-day asset verification window)
Can Cash-Out Proceeds Satisfy Reserves?
Yes. If you are doing a cash-out refinance, the cash-out proceeds from the loan can be used to satisfy the reserve requirement. This is a significant program feature â it means a cash-out refinance borrower does not need pre-existing reserves beyond what they access through the refinance itself.
For purchase transactions, reserves must be in your account prior to closing â cash-out proceeds cannot satisfy purchase transaction reserve requirements.
The 30-Day Asset Verification Requirement
All reserve assets must be verified with at least 30 days of account statements. Any large deposit within the 30-day window must be sourced â meaning you need documentation of where the money came from (payroll, business transfer, property sale, etc.).
Common sourcing documents:
– Payroll stubs confirming the deposit
– Business bank statement showing the transfer
– Settlement statement from a property sale
– Gift letter with wire confirmation (for gift funds)
Deposits that cannot be sourced are excluded from the reserve calculation.
Frequently Asked Questions
What are the reserve requirements for a bank statement loan?
3 months PITIA at LTV at or below 80%. 6 months PITIA at LTV 80.01â85%. 9 months for loans above $1.5M. 12 months for loans above $2.5M.
Do reserves have to be liquid cash?
Not entirely. Investment accounts, retirement accounts (at 60%), and CDs count. Retirement accounts are credited at 60% of vested balance to account for early withdrawal taxes and penalties.
Can I use my business account for reserves?
Yes, with documented ownership and access to the funds. Business accounts where you are the sole owner or have authorized access are eligible reserve sources.
Are reserves separate from down payment?
Yes. Reserves are the assets remaining after you pay your down payment and closing costs. They are in addition to, not inclusive of, the down payment.
Can the seller pay my closing costs to reduce the cash I need?
Seller concessions can reduce closing costs but cannot substitute for reserves. The reserve requirement must be met with your own verified assets.
Go Deeper
About the Author
Mayer Dallal is the Managing Director of Mbanc (Mortgage Bank of California, NMLS #38232), a consumer-direct Non-QM lender specializing in bank statement loans, DSCR loans, and asset utilization programs for self-employed borrowers and real estate investors. Mbanc is licensed in 22 states for primary residence lending plus an additional 24 states and Washington DC for non-owner-occupied investment property financing under the business-purpose exemption.
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Mbanc NMLS #38232 | Equal Housing Opportunity Lender
| Mortgage Bank of California
