Reserve Requirement

Funds that borrowers must have prior to closing to demonstrate that they have the ability to make monthly payments. Mortgage lenders often require loan applicants to demonstrate that they have sufficient funds for the down payment, closing costs, prepaid expenses, escrow deposits and reserve requirements. The reserve requirement is usually two months of PITI payments for homebuyers. It does not have to be paid to the lender; the borrower just has to show that he or she has the funds. For more information, see the "Escrow Accounts" article in the "Homebuyer Guide" section.

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