There are many investors that still do not know that Fannie Mae is requiring additional reserves from borrower’s that have more than one financed property.
The Old requirements was 6 months Principle, Interest, Taxes and Insurance (PITI)on the subject property and 2 on all other properties up to 4 leveraged 1 – 4 family properties excluding the primary residence. Properties 5 – 10 would require 6 month PITI on all properties.
The New requirements are based on a percentage of the unpaid principal balance on each loan excluding the primary residence.
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.
| Occupancy | Outstanding UPB | Monthly PITIA | Reserves Calculations | |
| Subject: Second Home | $78,750 | $776 | 2 Months PITIA | $1,552 |
| Principle Residence | $0 | $179 | N/A | $0 |
| Investment Property | $87,550 | $787 | 2% of UPB | $1,751 |
| Investment Property | $142,500 | $905 | 2% of UPB | $2,910 |
| Total Balances | $230,050 | Total Reserves Required | $6,153 | |
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.
| Occupancy | Outstanding UPB | Monthly PITIA | Reserves Calculations | |
| Subject: Investment | $78,750 | $776 | 6 Months PITIA | $4,656 |
| Principle Residence | $0 | $946 | N/A | $0 |
| Investment Property | $87,550 | $787 | 4% of UPB | $3,502 |
| Investment Property | $142,500 | $905 | 4% of UPB | $5,700 |
| Investment Property | $84,950 | $722 | 4% of UPB | $3,398 |
| Investment Property | $30,030 | $412 | 4% of UPB | $1,201 |
| Total Balances | $345,030 | Total Reserves Required | $18,457 | |
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.
| Occupancy | Outstanding UPB | Monthly PITIA | Reserves Calculations | |
| Subject: Investment | $78,750 | $776 | 6 Months PITIA | $4,656 |
| Principle Residence | $0 | $179 | N/A | $0 |
| Investment Property | $87,550 | $787 | 6% of UPB | $5,253 |
| Investment Property | $142,500 | $905 | 6% of UPB | $8,550 |
| Investment Property | $84,950 | $787 | 6% of UPB | $5,097 |
| Investment Property | $30,300 | $412 | 6% of UPB | $1,801 |
| Second Home | $124,500 | $837 | 6% of UPB | $7,470 |
| Investment Property | $160,000 | $1,283 | 6% of UPB | $9,600 |
| Total Balances | $629,530 | Total Reserves Required | $42,427 | |
The aggregate UPB calculation does not include the mortgages and HELOCs that are on
- the subject property,
- the borrower’s principal residence,
- properties that are sold or pending sale, and
- accounts that will be paid by closing.
The subject property will still have monthly reserve requirements based on the total mortgage payment (PITI). Reserves are funds are funds that you have access to liquid or non-liquid. Reserves are funds you need to have after the closing your transaction. Funds for reserves cannot be your funds for down payment or closing cost.
Good News
Non-Liquid funds can be used for reserve requirements”
- IRA’s
- 401K’s
- SEP Funds
Fannie Mae now will allow for 100% of the Non-Liquid funds, not 60%
Freddie Mac currently has different guidelines than Fannie Mae.
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