Understanding PITI Reserves: What Qualifies (and What Doesn’t!)

The mortgage industry is notorious for its acronyms. DTI, LTV, PMI…The list goes on. Today we are going to put the spotlight on PITI reserves required by some FHA loans.

Do you feel a little lost already? Don’t worry! By the end of this post, you’ll practically be an expert in PITI reserves.

What Are PITI Reserves?

PITI stands for principal, interest, taxes and insurance. Although the FHA doesn’t require reserves to qualify for a loan, borrowers with a low credit score or high DTI (debt-to-income ratio) might need up to two months of liquid assets on hand to obtain an FHA loan from some lenders.

PITI Reserve Qualifications

When you think of reserves, you might think of a significant sum of money placed into an account to use if you can’t make your mortgage payment. This is partially true, but PITI reserves aren’t as cut-and-dried as that. Here is a list of the types of funds that borrowers can use as PITI reserves:

• Savings, checking and money market account funds
• Stocks and mutual funds
• Bonds and CODs
• Pending IRS tax refunds
• Up to 60% of your 401K or IRA balances
• Cash

This list is helpful, but you might be wondering what types of funds are off-limits. These financial sources don’t count toward PITI reserves:

• Financial gifts
• Borrowed funds
• Equity earned on another property
• Cash obtained from a cash-out refinance
• Money received at closing on the mortgage
• Seller contributions

After this whirlwind explanation of PITI reserves, your head is probably swimming with questions! Contact MortgageDepot today to learn more about how to qualify for an FHA loan in Pennsylvania.

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