Everything looks good on your application for a mortgage to purchase your single family residential investment property:
But then, in the process of reviewing your documentation and running their required public record reports, the underwriter discovers that you own other financed properties…
Conventional underwriting guidelines require borrowers to have a significant amount of reserves when you have multiple financed properties. For example, if you have two other $100,000 mortgages, you are required to show that you have $4,000 of additional reserves in the bank – representing 2% of the Unpaid Principal Balances (UPB) of these mortgages. This percentage increases to 4% of UPB if you have five or six financed properties, and 6% of UPB for up to ten financed properties.
Three reserve considerations when you have multiple properties (the last two requirements apply to the to-be-financed property, and only the last one requires that funds be escrowed):
1) 2-6% of Unpaid Principal Balances
2) 6 months PITI (Principal, Interest, Property Taxes and Insurance)
3) 3-4 months escrow cushion for property taxes and insurance.