What are mortgage reserves?
Mortgage reserves are eligible assets available after you pay the funds needed to close. Lenders may measure them in months of the qualifying housing payment. They are not an extra fee paid to the lender. Required amounts and acceptable assets depend on the loan, property and full application review.
A hypothetical reserve calculation
Suppose $18,000 of eligible assets remains after closing, and the qualifying monthly housing payment is $3,000. Dividing $18,000 by $3,000 gives 6 months of reserves. That is an illustration, not a requirement for your loan. Money already allocated to the down payment and closing costs cannot also be treated as money left afterward.
Confirm which assets are usable
Savings and some investments may qualify, but the lender must verify ownership, access and any applicable restrictions. A statement balance is not always the amount that can be counted. Ask before transferring money, borrowing against an account or assuming that every retirement-account dollar is available for the loan review.
Keep your own emergency plan
Ask for the required reserve amount and the exact payment used in that calculation. Separately decide what cash you want for moving, repairs and interruptions in income. Meeting the lender’s reserve requirement does not establish that your personal emergency fund is large enough or easy to access when needed.