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Reserves are liquid assets that borrowers must maintain after closing and cannot be used for down payment or closing costs. Reserves provide a safety cushion, ensuring borrowers can continue making mortgage payments even if they experience temporary income loss, unexpected expenses, or other financial disruptions. Reserves are typically expressed as a multiple of the monthly housing payment (PITIA). For example, a requirement of “6 months of reserves” means the borrower must have liquid assets equal to 6 months of PITIA remaining after closing.

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Why reserves are required

Lenders require reserves to:
  1. Protect against payment default - Reserves ensure borrowers can make payments during temporary financial hardship
  2. Demonstrate financial stability - Having reserves shows the borrower has financial discipline and planning
  3. Reduce loan risk - Borrowers with reserves are less likely to default, reducing risk for lenders and investors
  4. Meet program requirements - Many loan programs (especially jumbo and investment property loans) mandate reserve requirements

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How reserves are calculated

Pylon automatically calculates reserve requirements based on the loan program, property type, and loan amount. Reserves are calculated as: 
Required Reserves = Number of Months × PITIA
Where:
  • Number of Months = The reserve requirement for the loan program (e.g., 6 months, 9 months)
  • PITIA = Principal, Interest, Taxes, Insurance, Association fees (the complete monthly housing payment)
The system determines available reserves by subtracting funds needed for down payment and closing costs from total liquid assets.

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Reserve requirements by loan program

Reserve requirements vary significantly by loan program and loan characteristics:
Loan ProgramProperty TypeLoan AmountReserve Requirement
ConventionalPrimary residenceAny0-2 months (varies by program)
FHAPrimary residence (1-2 units)Any0 months
FHAPrimary residence (3-4 units)Any3 months PITIA
JumboPrimary residence≤ $1,000,0006 months PITIA
JumboPrimary residence$1,000,001 - $1,500,0009 months PITIA
JumboPrimary residence$1,500,001 - $2,000,00012 months PITIA
JumboPrimary residence$2,000,001 - $3,000,00024 months PITIA
Investment propertyInvestmentAny6 months PITIA (typical)
Second homeSecond homeAny2-6 months PITIA (varies)

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Guidelines to consider

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Multiple properties

When borrowers have multiple financed properties, reserve requirements typically increase. Each additional financed property may require 2-6 months of PITIA in additional reserves, depending on the loan program. Example with multiple properties:
PropertyPITIAReserve RequirementReserves Needed
Primary residence$8,500/month6 months$51,000
Investment property #1$3,200/month6 months$19,200
Investment property #2$2,800/month6 months$16,800
Total reserves required$87,000
The reserve requirement applies to each property’s PITIA. Only properties with liens (mortgages) typically count toward reserve requirements.

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Property type considerations

  • Primary residence: Typically requires 0-2 months for conventional loans, 0 months for FHA (1-2 units), but 6-24 months for jumbo loans depending on loan amount
  • Second home: Typically requires 2-6 months of PITIA
  • Investment property: Typically requires 6 months of PITIA per property
  • Multi-unit properties: FHA requires 3 months PITIA for 3-4 unit properties

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Loan amount considerations

For jumbo loans, reserve requirements increase with loan amount:
Loan AmountReserve Requirement
≤ $1,000,0006 months PITIA
$1,000,001 - $1,500,0009 months PITIA
$1,500,001 - $2,000,00012 months PITIA
$2,000,001 - $3,000,00024 months PITIA

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Example calculation

Here’s a simple example of how reserves work: Loan details:
  • Loan amount: $1,200,000 (jumbo loan)
  • PITIA: $8,500/month
  • Reserve requirement: 9 months of PITIA
Calculation:
  • Required reserves: 9 months × $8,500/month = $76,500
The borrower must have at least $76,500 in liquid assets remaining after closing (after down payment and closing costs are paid). Pylon automatically calculates this by subtracting funds needed for closing from total assets.

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What counts as reserves

Reserves must be liquid assets that remain available after closing. The same asset types that can be used for down payment can typically be counted as reserves, but with important distinctions:
Asset TypeCan Count as ReservesNotes
Checking accountsYesMust remain after closing
Savings accountsYesMust remain after closing
Money market accountsYesMust remain after closing
Retirement accountsVariesMay require documentation of withdrawal ability
Investment accountsYesCurrent market value
Gift fundsNoGifts are typically used for down payment, not reserves
Sale proceedsYesIf sale closes before or simultaneously

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Key distinction: Down payment vs. reserves

The same dollar cannot be used for both down payment and reserves. The system calculates available assets after subtracting funds needed for down payment and closing costs. Example:
ScenarioTotal AssetsDown Payment UsedAvailable Reserves
Scenario 1$100,000$80,000$20,000
Scenario 2$100,000$60,000$40,000
In Scenario 1, only $20,000 is available for reserves. In Scenario 2, $40,000 is available. The same $100,000 cannot cover both a large down payment and substantial reserves.

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Querying reserves in GraphQL

To check reserve requirements and available reserves for a loan: 
query GetLoanReserves($loanId: ID!) {
  loan(id: $loanId) {
    id
    productPricingRate {
      monthlyPayment
      pitia {
        principalAndInterest
        taxes
        mortgageInsurance
        homeownersInsurance
        hoaDues
        floodInsurance
      }
    }
    deal {
      borrowers {
        id
        assets {
          id
          amount
          type
        }
      }
    }
  }
}
The monthlyPayment field represents PITIA. Multiply this by the required number of months to calculate reserve requirements. Compare this to the total of available assets (after subtracting down payment and closing costs) to verify reserves are met.