What are 'reserves' in mortgage lending?

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Multiple Choice

What are 'reserves' in mortgage lending?

Explanation:
Reserves are extra cash or other liquid assets that you keep after closing to serve as a financial cushion. They’re there to cover several months of mortgage payments (PITI) if income dips or unexpected expenses arise, so the loan remains affordable even in tougher times. These funds stay accessible in cash or cash-equivalents and aren’t part of the down payment or the closing costs, nor are they the same as insurance premiums. Lenders require reserves to reduce the risk that you could miss payments, and the required amount is typically shown as a number of months of PITI, varying by loan type and borrower risk.

Reserves are extra cash or other liquid assets that you keep after closing to serve as a financial cushion. They’re there to cover several months of mortgage payments (PITI) if income dips or unexpected expenses arise, so the loan remains affordable even in tougher times. These funds stay accessible in cash or cash-equivalents and aren’t part of the down payment or the closing costs, nor are they the same as insurance premiums. Lenders require reserves to reduce the risk that you could miss payments, and the required amount is typically shown as a number of months of PITI, varying by loan type and borrower risk.

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