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Cash reserves, or “mortgage reserves,” are funds a customer has easy access to in addition to their down payment and closing costs. These funds can be liquid—like cash in a checking account—or easily turned into cash—such as stocks and bonds. Many lenders require proof of cash reserves to confirm a customer can afford a certain number of mortgage payments, usually two to six, in the event of a financial emergency. If additional costs like HOA dues will be charged, the cash reserves will need to cover them, too.
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Standards vary by lender, but commonly accepted cash reserves include funds in:
- Checking or savings accounts
- Trust accounts
- Stocks and bonds
- Retirement savings accounts, based on vested amounts
- Certificates of deposit (CDs), money market funds, mutual funds
- Life insurance policies, based on their vested cash value
