Why VA Buyers Might Need Cash Reserves

Your income and asset picture is important to the homebuying journey. Lenders want to make sure you have stable, reliable income that’s likely to continue.

Generally, there’s no minimum dollar amount you need in the bank to start the homebuying process. But lenders will be on the lookout to make sure you can financially handle the new mortgage payment and the costs of closing on the loan.

In some cases, you may need a certain amount of cash reserves to satisfy lenders. A solid stockpile of documented funds can also serve as a “compensating factor” to help buyers overcome other potential deficits or issues with their loan file. Policies and guidelines will vary by lender, loan type and other factors.

Lenders typically think of reserves in the context of your monthly mortgage payment. You may need to have a certain number of months’ worth of mortgage payments in the bank, to include the principal, interest, property taxes, homeowners insurance (and homeowners association dues when applicable).

Reserves for Jumbo VA Loans

VA buyers seeking a jumbo loan may need to meet reserve requirements. A jumbo loan is a loan in excess of the current $453,100 conforming loan limit in place throughout most of the country.

Reserves must be in the borrower’s name and can’t be a gift. But lenders may be willing to count a 

Using Rental Income

Buyers looking to purchase a multiunit property and count projected rental income toward loan qualification will typically need to have a two-year tax history as a landlord. Many times they’ll also need cash reserves.

The same is typically true for buyers who want to count income from an existing rental property they never occupied. You’ll often need cash reserves and to be able to document a two-year history of receiving rental income. 

Borrowers may also need to have cash reserves if they’re more than 12 months removed from converting a primary residence into a rental property.

Talk with lenders about their policies and guidelines.

Compensating Factors

Borrowers may be able to strengthen their loan file with “compensating factors.” These can vary by lender, loan type and other factors, but they’re generally positive attributes that can help convince underwriters you’re a safe bet.

For example, lenders may be willing to extend their cap on debt-to-income ratio for borrowers with one or more compensating factors.