You generally need at least two months of reserves when buying a second home with a conventional loan run through Fannie Mae's Desktop Underwriter.
If your new monthly housing payment is $2,500, for example, two months of reserves would equal $5,000. That money is separate from your down payment and closing costs and generally needs to remain available after you close.
Second Home Reserve Requirements Basics
| Question |
What It Means for You |
| How much do you generally need? |
At least two months of the applicable housing payment for a second-home transaction run through DU. |
| Are reserves part of your down payment? |
No. Reserves generally need to remain available after the down payment and closing costs are paid. |
| Can you need more than two months? |
Yes. Additional reserves can apply if you own other financed properties or DU requires more based on the loan's overall risk. |
| Can retirement accounts count? |
Eligible vested retirement funds can count as reserves without necessarily being withdrawn. |
| Can investments count? |
Eligible stocks, government bonds and mutual funds can count when their value and ownership are verified. |
Reserves are only one part of the broader requirements for a second-home mortgage. You still need to qualify based on your income, debts, credit, down payment and how you plan to use the property.
What Does Two Months of Reserves Mean?
A month of reserves is based on the monthly housing expense used for the mortgage, not simply the principal-and-interest payment.
Depending on the property and loan, that housing expense can include:
- Principal and interest
- Property taxes
- Homeowners insurance
- Mortgage insurance, when applicable
- Homeowners association dues
- Other applicable housing expenses
These costs are often referred to together as PITIA: principal, interest, taxes, insurance and assessments.
For example:
| Monthly Second-Home Housing Payment |
Two Months of Reserves |
| $2,000 |
$4,000 |
| $2,500 |
$5,000 |
| $3,000 |
$6,000 |
| $4,000 |
$8,000 |
Fannie Mae generally requires two months of reserves for a second-home transaction evaluated through Desktop Underwriter. DU can require additional reserves based on the overall loan.
Are Reserves Part of Your Down Payment?
No. Your reserves are separate from the money you use to buy the property.
Suppose you are buying a $400,000 second home with 10% down. Your down payment would be $40,000. If your monthly housing payment is $2,500, you could also need at least $5,000 in reserves, plus whatever you need for closing costs.
That means having $40,000 available would not necessarily be enough to complete the purchase even though you have the minimum down payment.
Your total financial picture could look more like this:
| Cash or Assets Needed |
Example |
| 10% down payment |
$40,000 |
| Closing costs and prepaids |
Varies by transaction |
| Two months of reserves |
$5,000 with a $2,500 monthly housing payment |
The down payment on a second home and the required reserves therefore need to be planned together rather than treated as the same pool of money.
When Do You Need More Than Two Months of Reserves?
Two months is the basic Fannie Mae DU requirement for a second-home transaction, but it is not necessarily the final amount you will need.
You can need more when you own additional financed properties.
Desktop Underwriter can also require additional reserves based on the overall risk assessment of your application. Your lender will use the DU findings and applicable Fannie Mae rules to determine the amount that must be documented.
How Do Multiple Financed Properties Affect Your Reserves?
If you own other financed real estate in addition to your primary residence and the second home you are financing, Fannie Mae can require additional reserves for those properties.
The calculation is based on a percentage of the unpaid mortgage and HELOC balances on the other financed properties that are included in the reserve calculation.
Under the current rules:
| Number of Financed Properties |
Additional Reserve Calculation |
| 1 to 4 financed properties |
2% of the aggregate unpaid mortgage and HELOC balances on the other properties included in the calculation |
| 5 to 6 financed properties |
4% of those aggregate unpaid balances |
| 7 to 10 financed properties |
6% of those aggregate unpaid balances for DU loans |
The calculation generally excludes the mortgage on the second home you are currently financing and the mortgage on your primary residence. Properties being sold or paid off by closing can also be excluded when the applicable requirements are met.
So if you only have a mortgage on your primary residence and are buying your first second home, the additional multiple-property calculation generally does not mean taking a percentage of your primary-home mortgage balance.
If you already own rental properties or another financed second home, however, the required assets can increase quickly.
What Assets Can Count as Second Home Reserves?
You do not necessarily need to keep the entire reserve amount in a checking account.
Fannie Mae defines reserves as liquid or near-liquid assets that remain available after closing and can be converted into cash.
Depending on the applicable requirements, eligible assets can include:
- Checking and savings accounts
- Certificates of deposit and other eligible depository accounts
- Stocks
- Government bonds
- Mutual funds
- Vested retirement funds such as eligible 401(k) and IRA assets
- Certain other verified liquid or near-liquid assets
The lender needs to verify that you own the assets and determine the amount that can be counted.
Can Your 401(k) or IRA Count as Reserves?
Yes, eligible vested retirement funds can count toward the reserve requirement.
Fannie Mae allows vested funds in eligible retirement accounts, including 401(k)s and IRAs, to be used for reserves when the account meets its requirements.
You generally do not have to withdraw the money just to have it counted as reserves. The lender does need to verify that you own the account, that the funds are vested and that the account permits withdrawals under the applicable rules.
This can make an important difference for second-home buyers who have significant retirement savings but prefer to keep those assets invested rather than liquidating them for the purchase.
Can Stocks and Mutual Funds Count as Reserves?
Yes. Eligible stocks, government bonds and mutual funds can be used as reserves when their ownership and value can be verified.
Fannie Mae allows 100% of the verified value of eligible stocks and mutual funds to be considered when they are being used as reserves. The assets do not have to be liquidated simply to count toward the reserve requirement.
Market values can change, so the amount ultimately available to satisfy the requirement depends on the value documented during underwriting.
Can Gift Funds Count as Reserves?
Eligible gift funds can potentially help satisfy Fannie Mae's financial reserve requirements.
The gift must come from an acceptable source and meet the applicable documentation requirements. A gift of equity is treated differently and cannot be used to satisfy the reserve requirement.
Gift-fund rules can also interact with the amount of your own money required for the purchase. For example, some second-home transactions above 80% LTV require a minimum borrower contribution even when gift funds are being used.
That means a gift that helps with your purchase does not automatically eliminate every requirement to contribute or retain your own assets.
Do Reserves Affect Whether You Qualify?
Yes. If your loan requires a certain amount of reserves, you generally need to document enough eligible assets to meet that requirement after accounting for the money needed to close.
Having additional reserves can also be relevant to Desktop Underwriter's overall assessment of the loan. Fannie Mae notes that reserves can serve as a compensating factor in DU's risk analysis.
However, having substantial savings does not automatically overcome other qualification problems. You still need to meet the applicable income, debt, occupancy and underwriting requirements.
For example, if you already have another home loan, qualifying for a second home while carrying your existing mortgage depends partly on whether your income supports both housing obligations. Extra reserves do not remove those payments from your DTI.
Do Second Homes Require More Reserves Than Primary Homes?
They can.
Fannie Mae does not set a minimum reserve requirement for a standard one-unit primary-residence transaction run through DU. A second-home transaction generally requires at least two months.
An investment property generally requires more. Fannie Mae's baseline DU requirement is six months of reserves for an investment-property transaction.
| Property Type |
Standard DU Minimum |
| One-unit primary residence |
No standard minimum reserve requirement |
| Second home |
Two months |
| Investment property |
Six months |
That difference is one of several underwriting distinctions between second homes and investment properties.
How Much Money Should You Have Before Buying a Second Home?
The reserve requirement is not the total amount you should expect to have available.
You may need enough assets for:
- Your down payment
- Closing costs
- Prepaid taxes and homeowners insurance
- Required reserves
- Any additional reserves tied to other financed properties
You may also want money available for expenses that are not mortgage requirements, such as furnishing the home, repairs, travel and unexpected maintenance.
For example, a buyer purchasing a $400,000 second home with 10% down could need $40,000 for the down payment before accounting for second-home closing costs and the assets that must remain in reserve.
This is why the minimum down payment alone can understate the financial preparation needed to buy a second home.
The Bottom Line
You generally need at least two months of reserves for a Fannie Mae second-home mortgage run through Desktop Underwriter. If your qualifying monthly housing payment is $3,000, that means having at least $6,000 in eligible assets available after accounting for your down payment and closing costs.
You may need more if you own other financed properties or Desktop Underwriter requires additional reserves based on the loan.
Those reserves do not necessarily have to sit entirely in cash. Eligible investment and vested retirement assets can also count when they meet Fannie Mae's requirements and are properly documented.
FAQ
How Many Months of Reserves Do You Need for a Second Home?
Fannie Mae generally requires at least two months of reserves for a second-home transaction evaluated through Desktop Underwriter. You may need more if you own other financed properties or DU requires additional reserves based on the overall loan.
What Does Two Months of Mortgage Reserves Mean?
Two months of reserves generally means having eligible assets equal to two months of the applicable housing payment. If your qualifying monthly housing payment is $2,500, two months of reserves would equal $5,000.
Do Reserves Have to Be Cash?
No. Eligible reserves can include cash and certain near-liquid assets. Vested retirement funds, stocks, government bonds and mutual funds can potentially count when they meet Fannie Mae's requirements and are properly verified.
Can a 401(k) Count as Second Home Reserves?
Yes. Eligible vested 401(k) funds can count toward Fannie Mae reserve requirements. You generally do not need to withdraw the money simply to have it counted as reserves, although the lender must verify the account and that the funds meet the applicable requirements.
Are Reserves Included in the Down Payment?
No. Your down payment is money used to purchase the home, while reserves generally need to remain available after closing. You also need to account separately for closing costs and other funds required to complete the transaction.
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