The prospective borrower must have enough verified liquid assets to cover the loan's down payment, closing costs and prepaid items without resorting to borrowed funds as well as additional reserves for the first payments due. These four expenses require cash or easily cashable assets because they are paid at the closing or in the initial months.
The reserve requirement for homebuyers is usually two months of PITI (principal, interest, taxes and insurance). For investment properties, the reserve requirement is typically six months.
With a few exceptions, qualified liquid assets must be verified as having belonged to the borrower or coming from a source that belongs to the borrower. The burden of proof is on the applicant. Failure to document sufficient liquid assets will result in rejection or suspension of the application. Additional details and exceptions are provided below.
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