Mortgage reserves are the cash you still have after you pay your down payment and closing costs. Lenders count them in months of your full housing payment. For many Arizona buyers with a clean file the number is zero to two months. For a second home, a rental, or a jumbo loan it climbs to six or twelve. Here is how to tell which group you are in, with a real purchase worked out.

What reserves are and why lenders ask for them

Reserves are liquid money that sits in your accounts after the deal closes. A lender wants to know that if your income dipped for a month or two, the mortgage would still get paid. The yardstick is your full payment: principal, interest, property taxes, homeowners insurance, and HOA dues if there are any. People call that PITIA. Two months of reserves means two months of PITIA, not two months of rent or two months of your take home pay.

Most of the time the underwriting findings from the automated system decide the number. A big down payment, a high credit score, and a low debt to income ratio can bring it to zero. A thin file with a smaller down payment can bring it up. That is why two buyers on the same Scottsdale street can hear different answers. The Consumer Financial Protection Bureau's buying guide explains what lenders weigh when they look at your finances.

Cash to close and reserves are two separate piles. Lenders want to see both.

What counts as reserves and what does not

Liquid assets count. Checking, savings, and money market balances count at full value. Stocks, bonds, and mutual funds usually count too, often at full value, though some lenders discount them. Retirement accounts like a 401k or an IRA are often counted at a reduced share of the balance, because of taxes and penalties if you pull the money out. The percentage varies by lender and loan program, so ask before you rely on it.

Some money never counts. The down payment does not count, because it is going into the house. Closing costs and prepaid items do not count. Earnest money you have already paid is part of your cash to close, not your reserves. Money you borrow, like a cash advance or a personal loan, does not count. Gift funds often cannot count either. Many programs let a gift cover the down payment but still require reserves from your own money.

One more trap: you have to document the money. Lenders usually want two months of statements. A large deposit that does not match your pay needs a written explanation and a paper trail. Moving funds around right before you apply is how a simple file turns into a long one.

The numbers on a $550,000 Scottsdale purchase

Take a $550,000 home with 10% down, a $495,000 loan, and a 6.50% rate. That rate is an example for the math, not a quote. Principal and interest comes to about $3,129 a month. Add roughly $250 a month for property taxes and $200 for insurance, and PITIA is about $3,579. Closing costs at 2.5% of the price run about $13,750. Here is what the cash looks like at different reserve levels.

Same house, same loan. The cash you need to qualify ranges from about $68,750 to about $111,690. That is a $43,000 gap, and it is why reserves are the most common reason a buyer who thought they were ready is not.

Run your own numbers

How many months by loan type

These are typical ranges, not promises. Your file, your lender, and the property decide the real number.

FHA rules sit in the HUD handbook, and HUD publishes buyer information on its site. Investors with several properties may see requirements stack, because lenders can ask for reserves on the other financed homes too. Our guides to investment property loans and second home loans in Scottsdale go deeper on those.

What to do if you are short

You have a few real options. Put less down, so more of your cash stays liquid. Ask the seller for a credit toward closing costs, which lowers what you need on day one. Choose a program with lighter reserve rules, like FHA on a single family home. Wait two or three months and let savings build. Or have a lender look at assets you forgot about, like a brokerage account. For the bigger picture on cash, read our posts on the down payment on a house in Arizona and debt to income ratio.

Do not drain your accounts to make a bigger down payment if it leaves you at zero. Reserves are also your own cushion. A roof repair in a Valley summer, an AC replacement, or a slow month at work is a bad time to find out you have nothing left. Local market data from Homes.com's Phoenix housing market report shows how much room buyers have to negotiate, and in a market with more inventory you may be able to trade price for credits.

How to plan before you apply

Start with a pre approval, not a guess. A good loan officer will run your file through underwriting and tell you the reserve requirement before you shop. Our post on getting pre approved for a mortgage in Arizona walks through what to bring. You can see the options we offer on our loan programs page, and our process shows each step from application to keys. When you are ready to look at homes, start on Arizona Luxury Property Search.

Meet the Pillar Mortgage Group team, see more at pillarmortgagegroup.com, then book a call or use the form below. We will tell you the reserve number before you make an offer.

Frequently asked questions