Cash Reserves Requirements for VA Loans

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

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, including the principal, interest, property taxes, homeowners insurance (and homeowners association dues when applicable).

Here’s a look at a few situations that might require prospective VA buyers to have reserves on hand.

Reserves for Jumbo VA Loans

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

Cash reserve policies for VA jumbo loans can vary by lender and other factors. Generally, Veterans United does not typically require cash reserves for jumbo VA loans. But this can be a need when the borrower owns other properties. Talk with a Veterans United VA Loan Expert for more details.

Using Rental Income

Buyers looking to purchase a multiunit property with a VA loan 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.

In these situations, Veterans United currently requires six months’ worth of mortgage payments in 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 be able to document a two-year history of receiving rental income. We currently require three months’ reserves in these cases.

Borrowers may also need 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.

At Veterans United, we currently consider having four months’ of reserves after closing as a compensating factor. Borrowers may be able to count regular debt payments to supplement any shortfalls.

For example, a borrower with a $1,000 monthly mortgage payment would need $4,000 in reserves to qualify for a compensating factor. But if information from the credit bureaus shows the borrower makes $1,000 per month in debt payments, they can proceed with just $3,000 in reserves.

Additional payments can be considered as a compensating factor provided they occurred within the previous 120 days.

Talk with a Veterans United VA Loan Expert at 855-259-6455 for more details.