**What Counts as Reserves for Mortgage?**
When you apply for a mortgage, the lender will want to know if you have enough money in reserve to cover unexpected expenses, such as job loss, illness, or home repairs. Reserves can come from a variety of sources, including savings accounts, checking accounts, money market accounts, and retirement accounts.
**Here is a list of what counts as reserves for mortgage:**
* **Savings accounts:** This is the most common type of reserve account. Savings accounts are typically offered by banks and credit unions, and they offer a safe place to store your money while earning interest.
* **Checking accounts:** Checking accounts are another good option for reserve funds. Checking accounts are typically more accessible than savings accounts, but they may not offer as high of an interest rate.
* **Money market accounts:** Money market accounts are similar to savings accounts, but they offer higher interest rates. Money market accounts are typically offered by banks and credit unions, and they may require a minimum balance to open.
* **Retirement accounts:** Retirement accounts, such as 401(k)s and IRAs, can also be used as reserves for mortgage. However, it is important to note that you may have to pay taxes and penalties if you withdraw money from a retirement account before you reach retirement age.
**How much reserves do you need?**
The amount of reserves you need for mortgage will depend on your lender and your financial situation. However, most lenders will require you to have at least two months of mortgage payments in reserve. This means that if you lose your job or have a major unexpected expense, you will have enough money to cover your mortgage payments for at least two months.
**How to build up your reserves**
If you don’t have enough reserves for mortgage, there are a few things you can do to build them up:
* **Start saving every month.** Even if you can only save a small amount each month, it will add up over time.
* **Automate your savings.** Set up a recurring transfer from your checking account to your savings account each month. This will help you save money without having to think about it.
* **Consider a side hustle.** If you have extra time, you can earn extra money by starting a side hustle. This could be anything from driving for Uber to selling products online.
* **Cut expenses.** Take a close look at your budget and see where you can cut expenses. Even small changes can add up over time.
Building up your reserves for mortgage is an important step in the homebuying process. By following these tips, you can save money and make yourself a more attractive borrower to lenders.