Documentation Index
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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.
Why reserves are required
Lenders require reserves to:
- Protect against payment default - Reserves ensure borrowers can make payments during temporary financial hardship
- Demonstrate financial stability - Having reserves shows the borrower has financial discipline and planning
- Reduce loan risk - Borrowers with reserves are less likely to default, reducing risk for lenders and investors
- Meet program requirements - Many loan programs (especially jumbo and investment property loans) mandate reserve requirements
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
- 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.
Reserve requirements by loan program
Reserve requirements vary significantly by loan program and loan characteristics:
| Loan Program | Property Type | Loan Amount | Reserve Requirement |
|---|
| Conventional | Primary residence | Any | 0-2 months (varies by program) |
| FHA | Primary residence (1-2 units) | Any | 0 months |
| FHA | Primary residence (3-4 units) | Any | 3 months PITIA |
| Jumbo | Primary residence | ≤ $1,000,000 | 6 months PITIA |
| Jumbo | Primary residence | $1,000,001 - $1,500,000 | 9 months PITIA |
| Jumbo | Primary residence | $1,500,001 - $2,000,000 | 12 months PITIA |
| Jumbo | Primary residence | $2,000,001 - $3,000,000 | 24 months PITIA |
| Investment property | Investment | Any | 6 months PITIA (typical) |
| Second home | Second home | Any | 2-6 months PITIA (varies) |
Guidelines to consider
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:
| Property | PITIA | Reserve Requirement | Reserves Needed |
|---|
| Primary residence | $8,500/month | 6 months | $51,000 |
| Investment property #1 | $3,200/month | 6 months | $19,200 |
| Investment property #2 | $2,800/month | 6 months | $16,800 |
| Total reserves required | | | $87,000 |
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
Loan amount considerations
For jumbo loans, reserve requirements increase with loan amount:
| Loan Amount | Reserve Requirement |
|---|
| ≤ $1,000,000 | 6 months PITIA |
| $1,000,001 - $1,500,000 | 9 months PITIA |
| $1,500,001 - $2,000,000 | 12 months PITIA |
| $2,000,001 - $3,000,000 | 24 months PITIA |
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.
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 Type | Can Count as Reserves | Notes |
|---|
| Checking accounts | Yes | Must remain after closing |
| Savings accounts | Yes | Must remain after closing |
| Money market accounts | Yes | Must remain after closing |
| Retirement accounts | Varies | May require documentation of withdrawal ability |
| Investment accounts | Yes | Current market value |
| Gift funds | No | Gifts are typically used for down payment, not reserves |
| Sale proceeds | Yes | If sale closes before or simultaneously |
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:
| Scenario | Total Assets | Down Payment Used | Available Reserves |
|---|
| Scenario 1 | $100,000 | $80,000 | $20,000 |
| Scenario 2 | $100,000 | $60,000 | $40,000 |
Querying reserves in GraphQL
To check reserve requirements and available reserves for a loan:
query GetLoanReserves($loanId: ID!) {
loan(id: $loanId) {
id
productPricingRate {
monthlyPayment
pitia {
principalAndInterest
taxes
mortgageInsurance
homeownersInsurance
hoaDues
floodInsurance
}
}
deal {
borrowers {
id
assets {
id
amount
type
}
}
}
}
}
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.
