Question:

What are PITI reserves and how much they have to be?

Answer:

PITI reserves are several month cash reserves required by lender that borrowers must have at hand when closing on a mortgage loan. PITI stands for principal, interest, taxes and insurance.

For example, if your PITI payment is $1365/month and your lender demands 6-month PITI reserves, you will need to show an account or liquid assets of at least $8190.

A 6-month PITI reserve is not as common as 2-3 month PITI reserves for owner occupied properties. For investment properties, however, 6- to 12-month PITI reserves are common. Also, seasoning is also expected - that is, the funds can't show a history of several days but need to have been in existence for at least several months. Stocks and bonds, 401k and IRAs also qualify as PITI funds on reserve.

When comparing mortgage quotes, ask for the PITI payment in writing and have it broken down to see what exactly goes in it. Also, when discussing your monthly mortgage payment with your loan officer make sure what you are talking about - whether only principal and interest are discussed, or the whole PITI payment.

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