5501.2: Reserves (08/20/18)

(a) Calculation of reserves

Reserves are Borrower's assets remaining after the Mortgage closing. The source of funds used for reserves, when needed to qualify the Borrower for the Mortgage transaction, must meet the eligibility and documentation requirements in Section 5501.3. Reserves are measured by the number of months of the monthly payment amount for the property. The monthly payment amount is the sum of the following monthly charges:

Principal and interest payments on the Mortgage
Property hazard insurance premiums
Real estate taxes
When applicable:
- Mortgage insurance premiums
- Leasehold payments
- Homeowners association dues (excluding unit utility charges)
- Payments on secondary financing

When calculating reserves for the subject property, the principal and interest payment of the monthly payment amount must be based, at a minimum, on the Note Rate. When calculating reserves for other properties, the monthly payment amount for the property must be no less than the current monthly payment amount.

The minimum reserves requirements, as described below, must be met.

(b) Minimum required reserves

For Loan Product Advisor® Mortgages, the Seller must verify all reserves required by Loan Product Advisor, as stated on the Feedback Certificate, except as stated below for Mortgages secured by second homes and Investment Properties.For Manually Underwritten Mortgages, the verified reserves must equal or exceed the following reserves requirements:

Subject property	Required reserves
Primary Residence - 1-unit	None
Primary Residence - 2- to 4-unit	Six months for the subject property
Second home	Two months for the subject property
Investment Property	Six months for the subject property

Mortgages secured by second homes and Investment Properties require the following additional reserves:

Number of financed properties	Additional required reserves for second home or Investment Property Mortgages
	Loan Product Advisor Mortgages	Manually Underwritten Mortgages
When each Borrower individually, and all Borrowers collectively, are obligated on one to six financed properties, including the subject property and the Borrower's Primary Residence	Two months of the monthly payment amount (as described in Section 5501.2(a)) on each additional second home and/or 1- to 4-unit Investment Property that is financed and on which the Borrower is obligated.
When each Borrower individually, and all Borrowers collectively, are obligated on seven to 10 financed properties, including the subject property and the Borrower's Primary Residence	Eight months of the monthly payment amount (as described in Section 5501.2(a)) on each additional second home and/or 1- to 4-unit Investment Property that is financed and on which the Borrower is obligated	Not permitted

For Loan Product Advisor Mortgages, the additional required reserves stated in the chart above are included in the amount of reserves required to be verified on the Feedback Certificate.

For Home Possible® Mortgages, refer to Section 4501.10 for minimum reserves requirements.