You’ve saved enough for your down payment and closing costs. Every dollar is accounted for. You’ll close with exactly what you need and not a penny more.
Your lender says no.
They want you to have money left over after closing. Cash in the bank. Liquid assets you can access quickly. They call these “reserves,” and they’re not optional.
This surprises many homebuyers, especially those at 50 or older who carefully planned their down payment savings. You did everything right. You saved diligently. But now the lender is telling you that you actually saved too little, or you’re trying to put down too much.
Here’s what reserves are and why they matter more at this stage of life.
What Are Reserves?
Reserves are cash or assets that can be sold quickly. The lender wants to see that you’ll have this money available after you close on your home loan.
Why? Unexpected expenses happen. The HVAC system fails during a brutal Las Vegas summer. The roof springs a leak during a rare heavy rain. You need emergency dental work. A family member needs financial help.
The lender doesn’t want you to miss mortgage payments because you have no cushion for life’s surprises. Reserves are your financial buffer.
How Lenders Calculate Reserves
Lenders express reserve requirements in “months of housing payments.” One month of reserves equals one month’s worth of your principal, interest, taxes, and insurance (PITI).
If your monthly PITI payment is $2,000, two months of reserves means $4,000 in savings after closing. Six months means $12,000.
Different loan types require different amounts. More reserves are typically required for:
- Investment properties
- Second homes
- Jumbo loans
- Borrowers with lower credit scores
- Borrowers with higher debt-to-income ratios
- Multiple financed properties
For a primary residence with good credit and a standard loan, you might need two to six months of reserves. For other situations, lenders might require 12 months or more.
What Counts as Reserves?
Checking and Savings Accounts
Your most liquid assets count dollar-for-dollar. If you have $10,000 in savings after closing, that’s $10,000 in reserves.
Retirement Accounts
401(k), IRA, and other retirement accounts can count as reserves. But lenders only count 60% to 70% of the balance. Why the discount? You’d pay taxes and potentially penalties to access the money. On a $100,000 401(k), the lender might count $60,000 to $70,000 as reserves.
Stocks and Bonds
Publicly traded investments count as reserves, usually at 70% of their value to account for potential taxes and volatility.
Life Insurance Cash Value
If you have a whole life or universal life policy with cash value, that counts. Term life insurance doesn’t count because it has no cash value.
What Doesn’t Count
- The money you’re using for down payment and closing costs
- Borrowed money (you can’t borrow money to meet reserve requirements)
- Gifts that haven’t been deposited and sourced
- Assets you can’t access quickly (like a small business or real estate)
The Unexpected Down Payment Dilemma
This is where reserve requirements surprise buyers.
You’ve saved $70,000. You want to buy a $350,000 home with a 20% down payment ($70,000) to avoid mortgage insurance. Perfect plan.
But your lender requires six months of reserves. Your monthly PITI will be $2,100. Six months of reserves = $12,600.
You have $70,000. Your down payment is $70,000. You’ll need about $10,000 for closing costs. That’s $80,000 total. You’re $10,000 short.
Your options:
- Come up with another $10,000 before closing
- Make a smaller down payment
- Use a no-closing-cost mortgage to reduce cash needed at closing
- Find a loan program with lower reserve requirements
Most buyers choose option 2. They put down 15% instead of 20%. That frees up $17,500 ($70,000 – $52,500). After paying $10,000 in closing costs, they have $7,500 left over, which doesn’t quite meet the $12,600 reserve requirement, but might be acceptable with strong compensating factors.
The consequence? They’ll pay private mortgage insurance because they’re below 20% down.
Lenders Prefer You Have Reserves Over Avoiding PMI
This seems backwards at first. Why would a lender want you to pay PMI when you could avoid it?
Risk management.
From the lender’s perspective, a borrower with reserves is less likely to default than a borrower who depleted savings to avoid PMI. If you hit a financial emergency with zero savings, you’ll miss payments quickly. If you hit the same emergency with $10,000 in reserves, you’ll keep making payments while you figure things out.
The lender would rather see you:
- Put down 15% with healthy reserves
- Pay PMI monthly
- Have a financial cushion for emergencies
Than:
- Put down 20% with zero reserves
- Avoid PMI
- Risk defaulting at the first emergency
At 50 or older, this makes even more sense. You’re closer to fixed income. Medical emergencies become more common. You have less time to rebuild savings if you deplete them.
Why Reserves Matter More at 50+
Medical Expenses Increase with Age
Health insurance doesn’t cover everything. You’ll face copays, deductibles, dental work, vision care, hearing aids, and treatments that insurance denies. Having reserves means medical expenses don’t trigger mortgage default.
Income May Be Fixed or Declining
If you’re nearing retirement, your income might not grow like it did in your 30s or 40s. Some people at this age take lower-paying jobs with less stress. Others are already retired. Without income growth to absorb financial shocks, reserves become your only buffer.
Home Repairs Cost More
Older homes need more maintenance. Even newer homes have expensive systems that eventually fail. In Las Vegas, HVAC systems work hard fighting desert heat. Replacing a system costs $5,000 to $10,000. Pool maintenance, if you have one, runs $100 to $200 monthly plus occasional major repairs.
Family Obligations Can Increase
Your kids might need help with college, a wedding, or a down payment on their first home. Your aging parents might need financial assistance with medical care or living expenses. Reserves give you the flexibility to help family without risking your own housing.
Job Loss Takes Longer to Recover From
If you lose your job at 55, finding comparable employment takes longer than at 35. Age discrimination is illegal but real. Reserves buy you time to find the right opportunity rather than taking the first desperate offer.
How Much Reserve Should You Actually Keep?
The lender sets the minimum. You should keep more.
Three to Six Months for Strong Income
If you have stable employment with good income, aim for three to six months of total living expenses (not just housing payment). On a $2,000 mortgage and $3,000 in other monthly expenses, that’s $15,000 to $30,000.
Six to Twelve Months If Approaching Retirement
Once you’re within five years of retirement, boost reserves to six to twelve months. Your income flexibility decreases. Your ability to recover from setbacks decreases. More cushion protects you.
Twelve Months or More If Already Retired
If you’re retired on fixed income, twelve months of reserves minimum. Eighteen months is better. With no earned income, you can’t just “work more hours” or “get a raise” to cover emergencies.
Strategies to Meet Reserve Requirements
Calculate the Real Numbers First
Before falling in love with a house, calculate total cash needed:
- Down payment
- Closing costs (typically 2-3% of purchase price)
- Required reserves (ask your lender)
- Additional cushion for peace of mind
If you don’t have enough, adjust your plan before you start house hunting.
Consider a Smaller Down Payment
Paying PMI hurts. But it’s temporary. Once you reach 20% equity through payments and appreciation, you can request PMI removal. Having reserves protects you permanently.
Look at No-Closing-Cost Mortgages
If closing costs are draining your reserves, consider a no-closing-cost mortgage. You’ll pay a higher interest rate, but you’ll keep more cash in reserve. Calculate whether the higher rate costs less than the risk of having no reserves.
Use Retirement Accounts Strategically
Remember that lenders count 60-70% of retirement account values as reserves. A $100,000 IRA might count as $60,000 to $70,000 in reserves. You don’t have to withdraw the money. The lender just needs to verify it exists.
Don’t Depleat Everything for a Larger Down Payment
This is the biggest mistake buyers make at this age. They drain savings to put 20% down and avoid PMI. Then they close with nothing left. The first major expense forces them to pull from retirement accounts (with taxes and penalties) or charge credit cards.
Pay PMI if you must. Keep your emergency fund intact.
What Happens If You Don’t Have Enough Reserves?
The lender might:
Require a larger down payment. By reducing the loan amount, they reduce risk. Your monthly payment drops, so reserve requirements drop too.
Require a co-signer. Someone with better financial position could co-sign your loan, effectively allowing their reserves to count toward your requirement.
Deny your application. If you can’t meet reserve requirements and have no way to adjust the transaction, the lender will reject your application. This is less common for primary residences with strong borrowers, but it happens.
Approve with conditions. They might approve the loan but require you to build reserves after closing. This is rare and usually only happens with compensating factors like extremely high credit scores or very low debt-to-income ratios.
Your Reserves Are Your Safety Net
Think of reserves as insurance. You hope you never need them. But if you do need them, they’re worth far more than the mortgage insurance you paid to keep them.
At 50+, financial security matters more than minimizing monthly payments. You’re building toward retirement, not building wealth through aggressive leverage. Conservative financial management protects you.
Work with someone who understands this stage of life. Aaron Taylor “The Real Estate Guy” connects Las Vegas buyers with lenders who balance qualification requirements with financial security for mature buyers. They’ll help you structure your financing to qualify without compromising your stability.
Reserves aren’t punishment. They’re protection.
Frequently Asked Questions
How many months of reserves do I need for a mortgage?
Typically two to six months for a primary residence with good credit and stable income. Requirements increase for investment properties, second homes, jumbo loans, lower credit scores, or higher debt ratios. Your specific lender will tell you exact requirements based on your complete application.
Can I count my 401(k) as reserves even if I don’t withdraw money?
Yes. Lenders count 60-70% of retirement account balances as reserves. You don’t need to withdraw the funds. The lender just verifies the accounts exist and calculates the accessible value after estimated taxes and penalties. The money stays in your retirement accounts.
What if I barely meet reserve requirements?
You’ll qualify, but you’re cutting it close. The reserve requirement is a minimum. Going into homeownership with exactly the minimum leaves no room for error. Try to exceed requirements by at least 20-30% for actual financial security, not just qualification.
Do reserve requirements differ between FHA and conventional loans?
Not dramatically for primary residences. Both want to see reserves, though requirements vary by specific lender rather than loan type. FHA loans with lower credit scores might require more reserves as a compensating factor. Conventional loans for investment properties require substantial reserves.
Should I use my entire savings for a down payment to avoid PMI?
Usually no. Keep reserves even if it means paying PMI. PMI is temporary and can be eliminated once you reach 20% equity. Depleting all savings is permanent until you rebuild. At 50+, rebuilding takes longer and medical or family emergencies become more likely.
Can gift money count toward reserves?
Yes, if the gift has been deposited in your account, sourced, and documented with a gift letter. The money must be in your account before closing. Promised gifts that haven’t transferred don’t count. The funds must be accessible to you, not held by the gift giver.
What happens if I meet reserve requirements at application but spend the money before closing?
The lender checks your bank statements again shortly before closing. If your reserves have dropped below requirements, they may delay closing or deny the loan. This is why you shouldn’t make major purchases or take expensive vacations during the mortgage process.
Do reserves have to be in my name only, or can they include my spouse’s accounts?
If your spouse is a co-borrower on the loan, their assets count toward reserve requirements. If you’re buying solo but married, lenders may or may not count joint accounts depending on your state and the account structure. Ask your lender.
Are reserves different from money needed for down payment and closing costs?
Yes. Reserves are in addition to down payment and closing costs. If you need $20,000 for down payment, $8,000 for closing costs, and $6,000 in reserves, you need $34,000 total. The $6,000 stays in your account after closing.
Can I borrow money to meet reserve requirements?
No. Borrowed money doesn’t count as reserves. Lenders verify that your funds have been in your accounts long enough to demonstrate they’re truly yours. Recent large deposits trigger scrutiny and must be sourced. Borrowed funds would have to be repaid, so they don’t provide the stability lenders want to see.
Key Takeaways
- Reserves are cash or liquid assets lenders require you to have after closing, expressed in months of housing payments
- Lenders prefer you keep reserves and pay PMI rather than deplete all savings to avoid PMI
- Reserve requirements typically range from 2-6 months for primary residences with good credit
- Checking, savings, retirement accounts (at 60-70% value), and investment accounts all count as reserves
- At 50+, reserves protect against medical expenses, fixed income limitations, longer job recovery times, and increased home repair costs
- The biggest mistake is draining all savings for a 20% down payment to avoid PMI while leaving zero reserves
- Reserve requirements can force you to make a smaller down payment than planned, triggering PMI
- Aim for 6-12 months reserves if approaching retirement, or 12+ months if already retired
- Retirement accounts count toward reserves without withdrawing funds, but only at 60-70% of balance
- Work with Las Vegas lenders who understand financial security needs for buyers 50+ rather than just minimum qualification
