Mortgage Loans

Mortgage lenders will often approve a refinance loan or a purchase mortgage and make the loan contingent upon several loan conditions.

One of the most critical factors may be cash reserve requirements.

A cash reserve is a certain amount of money a borrower needs to show they have on hand in order to get a new mortgage loan.

This can be defined in terms of months – such as 2 months reserves or 3 months reserves.

Each month of reserves represents the total monthly cost of having the property – the mortgage expense, property taxes, home owners association dues, hazard insurance, and other expenses.

The lender will add up what this expense will be in the future if they approve your loan.

Cash Reserves

Cash reserves may be defined in different ways.

All money in a bank account is treated as a cash reserve.

Retirement assets such as IRA and 401(k) assets are also treated as cash reserves, but are usually valued at only 70% of their value. This is because these are not liquid, readily available sources of money.

Many borrowers may not have much in their bank account but have substantial savings in their retirement accounts. Often times they may be able to use these retirement accounts to document their income.

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Source: www.articlecity.com