Fannie Mae Selling Guide B3-4.1-01 — Minimum Reserve Requirements

Fannie Mae Selling Guide B3-4.1-01 — Minimum Reserve Requirements

B3-4.1-01, Minimum Reserve Requirements (08/07/2024) Introduction This topic contains information on minimum reserve requirements, including: What Are Liquid Financial Reserves? Acceptable Sources of Reserves Unacceptable Sources of Reserves Supplementing Borrower Funds Determining Required Minimum Reserves Calculation of Reserves for Multiple Financed Properties Simultaneous Second Home or Investment Property Transactions Examples of Reserves Calculations Additional Resources What Are Liquid Financial Reserves? Liquid financial reserves are those liquid or near liquid assets that are available to a borrower after the mortgage closes. Liquid financial reserves include cash and other assets that are easily converted to cash by the borrower by drafting or withdrawing funds from an account, selling an asset, redeeming vested funds, or obtaining a loan secured by assets from a fund administrator or an insurance company. Reserves are measured by the number of months of the qualifying payment amount for the subject mortgage (based on PITIA) that a borrower could pay using their financial assets. For monthly housing expense and qualifying payment requirements, see B3-6-03, Monthly Housing Expense for the Subject Property and B3-6-04, Qualifying Payment Requirements. The definition of reserves applies to both manually underwritten mortgage loans and loan casefiles underwritten through DU. Funds to close are subtracted from available assets when considering sufficient assets for reserves. Acceptable Sources of Reserves Examples of liquid financial assets that can be used for reserves include readily available funds in checking or savings accounts; investments in stocks, bonds, mutual funds, certificates of deposit, money market funds, and trust accounts; the amount vested in a retirement savings account; and Published May 6, 2026 401 the cash value of a vested life insurance policy. Unacceptable Sources of Reserves The following cannot be counted as part of the borrower’s reserves: funds that have not been vested; funds that cannot be withdrawn under circumstances other than the account owner’s retirement, employment termination, or death; stock held in an unlisted corporation; non-vested stock options and non-vested restricted stock; personal unsecured loans; rent-back credit; interested party contributions (IPCs) (see B3-4.1-02, Interested Party Contributions (IPCs)); any amount of a lender contribution (see B3-4.3-06, Grants and Lender Contributions); and cash proceeds from a cash-out refinance transaction on the subject property. Supplementing Borrower Funds Funds received from acceptable sources may be used to supplement the borrower’s funds to satisfy any financial reserve requirement. Note: Eligible gift funds (but not gifts of equity) may be used to satisfy reserve requirements. Determining Required Minimum Reserves Minimum required reserves vary depending on the transaction, the occupancy status and amortization type of the subject property, the number of units in the subject property, and the number of other financed properties the borrower currently owns. Manually underwritten loans: The minimum required reserves are documented in the Eligibility Matrix. DU loan casefiles: DU will determine the reserve requirements based on the following: Two months' reserves for a second home transaction. Six months' reserves for the following: a two- to four-unit principal residence transaction, an investment property transaction, and Published May 6, 2026 402 a cash-out refinance transaction with a DTI ratio greater than 45%. Additional reserves are required when a borrower has multiple financed properties and the subject loan is secured by a second home or investment property. See Calculation of Reserves for Multiple Financed Properties below for additional details. Reserves equal to the balance of 30-day accounts (reduced by the cash back received on a refinance transaction). Additional reserves may need to be verified based on DU's overall risk assessment. Note: There is no minimum reserve requirement for one-unit principal residence transactions. High LTV refinance loans are exempt from the minimum reserve requirements. Calculation of Reserves for Multiple Financed Properties If the borrower owns other financed properties (determined in accordance with B2-2-03, Multiple Financed Properties for the Same Borrower), additional reserves must be calculated and documented for financed properties other than the subject property and the borrower’s principal residence. The other financed properties reserves amount must be determined by applying a specific percentage to the aggregate of the outstanding unpaid principal balance (UPB) for mortgages and HELOCs on these other financed properties. The percentages are based on the number of financed properties: 2% of the aggregate UPB if the borrower has one to four financed properties, 4% of the aggregate UPB if the borrower has five to six financed properties, or 6% of the aggregate UPB if the borrower has seven to ten financed properties (DU only). The aggregate UPB calculation does not include the mortgages and HELOCs that are on the subject property, the borrower’s principal residence, properties that are sold or pending sale, and accounts that will be paid by closing (or omitted in DU on the online loan application). Simultaneous Second Home or Investment Property Transactions If a lender is processing multiple second home or investment property applications simultaneously, the same assets may be used to satisfy the reserve requirements for both mortgage applications. Reserves are not cumulative for multiple applications. Example: A lender is simultaneously processing two refinance applications for two investment properties owned by the borrower. The application for property A requires reserves of $5,000. The application for property B requires reserves of $10,000. Because the reserves are covering the same properties, the lender does not have to verify $15,000 in reserves, but only those required per each application. Examples of Reserves Calculations Published May 6, 2026 403 The following tables contain examples of reserves calculations for borrowers with multiple financed properties. Example 1: Three Financed Properties Occupancy Outstanding UPB Monthly PITIA Reserves Calculations Subject: Second Home $78,750 $776 2 Months PITIA = $1,552 Principal $0 $179 N/A $0 Investor $87,550 $787 $230,050 x 2% = $4,601 Investor $142,500 $905 $230,050 Total = $6,153 Example 2: Six Financed Properties Occupancy Outstanding UPB Monthly PITIA Reserves Calculations Subject: Investor $78,750 $776 6 Months PITIA = $4,656 Principal $133,000 $946 N/A $0 Investor $87,550 $787 $345,030 x 4% = $13,801 Investor $142,500 $905 Investor $84,950 $722 Investor $30,030 $412 $345,030 Total = $18,457 Example 3: Eight Financed Properties (DU ONLY) Published May 6, 2026 404 Occupancy Outstanding UPB Monthly PITIA Reserves Calculations Subject: Investor $78,750 $776 6 Months PITIA = $4,656 Principal $133,000 $946 N/A $0 Investor $87,550 $787 $629,530 x 6% = $37,772 Investor $142,500 $905 Investor $84,950 $722 Investor $30,030 $412 Second Home $124,500 $837 Investor $160,000 $1,283 $629,530 Total = $42,427 Additional Resources B2-2-03, Multiple Financed Properties for the Same Borrower; B3-4.4-01, DU Asset Verification; B3-6-03, Monthly Housing Expense for the Subject Property; and B3-6-04, Qualifying Payment Requirements. Recent Related Announcements The table below provides references to recently issued Announcements that are related to this topic. Announcements Issue Date Announcement SEL-2024-05 August 07, 2024 Announcement SEL-2023-03 April 05, 2023 Published May 6, 2026 405 Announcements Issue Date Announcement SEL-2020-06 October 07, 2020 Announcement SEL-2019-07 August 07, 2019 B3-4.1-02, Interested Party Contributions (IPCs) (05/07/2025) Introduction This topic contains information on interested party contributions, including: Overview Interested Parties Financing Concessions Maximum Financing Concessions Sales Concessions IPC Exclusions Undisclosed IPCs Interest Rate Buydowns Payment Abatements Lender Checklist for IPCs Overview Interested party contributions (IPCs) are contributions made by third parties with a vested interest in the transaction. These funds are used to cover costs that are typically the buyer's responsibility. IPCs may include financing or sales concessions, as described below. Fannie Mae does not permit IPCs to be used to make the borrower's down payment, meet financial reserve requirements, or meet minimum borrower contribution requirements. Fannie Mae considers the following to be IPCs: funds paid directly by an interested party to the borrower; funds that flow through a third-party organization, including nonprofit entities, from the interested party to the borrower; funds provided to the transaction on the borrower's behalf by an interested party, including a third-party organization or nonprofit agency; and funds donated by an interested party to a third party, which then pays some or all of the closing costs for a specific transaction. Published May 6, 2026 406 Interested Parties Interested parties to a transaction include, but are not limited to: the property seller, the builder or developer, the real estate agent or broker, any affiliate of the above, or any party that can benefit from the sale of the property at the highest price and influence the sales price or real estate transaction (For Fannie Mae's purposes, an affiliation exists when there is direct common ownership or control by the lender over the interested party, by the interested party over the lender or by a third party over both.) Note: A lender or employer is not considered an interested party to a sales transaction unless it is the property seller or is affiliated with the property seller or another interested party to the transaction. Financing Concessions Financing concessions are financial contributions towards the loan transaction from interested parties. Financing concessions are acceptable when they are contributed towards: Borrower closing costs, including prepaids; or Borrower homeowners' association (HOA) assessments covering any period after the settlement date (limited to no more than 12 months). Maximum Financing Concessions The table below provides maximum financing concessions, which are calculated using the lower of the sales price or appraised value (not the loan amount) of the subject transaction. Typical fees and/or closing costs paid by a seller in accordance with local custom, known as common and customary fees or costs, are not subject to Fannie Mae maximum financing concessions. Financing concessions that exceed the below limits are considered sales concessions and must be deducted from the property's sales price. As a result, the maximum LTV/CLTV ratios must be recalculated using the reduced sales price or appraised value. Additionally, financing concessions must be equal to or less than the sum of the borrower's closing costs. Any amount exceeding the borrower's closing costs must be treated as a sales concession. See Sales Concessions below. Published May 6, 2026 407 Occupancy Type LTV/CLTV Ratio Maximum Financing Concessions Principal residence or second home Greater than 90% 3% 1 75.01% – 90% 6% 75% or less 9% Investment property All CLTV ratios 2% See B5-4.2-03, Loans Secured by HomePath Properties for an exception to this limit for principal residence transactions. 1 Sales Concessions Sales concessions are IPCs that take the form of non-realty items and may be paid prior to, at or after closing of the transaction. They include, but are not limited to: contributions such as cash/cash-like gifts; rebates, such as those from real estate agents or brokers, which are not credited towards the transaction; furniture, automobiles, decorator allowances, moving costs, and other giveaways; lender incentives as described in B3-4.1-03, Lender Incentives from a lender who is, or is affiliated with, an interested party; and financing concessions that exceed the maximum financing concessions. Sales concessions must be deducted from the property's sales price and the lower of the reduced sales price or appraised value must be used to calculate LTV/CLTV ratios for underwriting and eligibility purposes. IPC Exclusions The following are not considered to be IPCs and are not subject to the requirements described in this topic. A lender credit derived from premium pricing, even if the lender is an interested party to the transaction; Gift funds or gift of equity from a seller who is also an acceptable donor provided that: The donor is not a builder, or another interested party, and has no affiliation with any other interested party to the transaction, and All requirements pertaining to gift funds and gift of equity from an acceptable donor as stated in B3-4.3-04, Personal Gifts and B3-4.3-05, Gifts of Equity are met; A legitimate pro-rated real estate tax credit in places where real estate taxes are paid in arrears; and Fees for standby commitments (refer to Interest Rate Buydowns section below). Published May 6, 2026 408 Undisclosed IPCs Mortgages with undisclosed IPCs are not eligible for sale to Fannie Mae. Examples of these types of contributions include, but are not limited to moving expenses, payment of various fees on the borrower's behalf, "silent" second mortgages held by the property seller, and other contributions that are given to the borrower outside of closing and are not disclosed on the settlement statement. Interest Rate Buydowns If a temporary or permanent interest rate buydown is being offered to the borrower, and the subsidy is funded by an interested party or a lender affiliated with one, the cost of that subsidy must be included in the IPC calculation. The lender must ensure the subsidy cost meets Fannie Mae's allowable maximum financing concessions. This can be accomplished by confirming the current market interest rate (that is, the rate without the payment of any discount points) and the discount points being charged to obtain the interest rate offered with the buydown. Note: Standby commitment (also known as forward commitment) agreements between a builder and lender for blanket interest rate coverage that are executed prior to signing a sales contract with a borrower are not subject to Fannie Mae's maximum financing concessions because they are not attributable to the specific loan transaction. Loans with a reduced interest rate due to a standby commitment must be delivered with SFC 887. Payment Abatements Loans with any type of payment abatement are not eligible for sale to Fannie Mae, even if they are disclosed on the settlement statement. This prohibition applies when an interested party funds the abatement directly and/or through another entity, such as a nonprofit down payment assistance program. Note: The payment of HOA fees is not considered an abatement unless the payment of the fee extends for more than 12 months. Paying HOA fees for 12 months or less is considered an interested party contribution. Lender Checklist for IPCs The lender must ensure that all of the following requirements for an IPC are satisfied. Published May 6, 2026 409 ✓ Lender Checklist for IPCs Ensure that any and all IPCs have been identified and taken into consideration. Provide the appraiser with all appropriate financing data and IPCs for the subject property granted by anyone associated with the transaction. Ensure that the property value is adequately supported. Ensure that the LTV and CLTV ratios, after any IPCs are taken into consideration, remain within Fannie Mae’s eligibility limits for the particular product. Ensure that the level of mortgage insurance coverage, if applicable, has been obtained, based on the standard LTV ratio after any IPC adjustments have been made. Note: When the transaction is a purchase of a property located in the state of New York, the determination of whether to place mortgage insurance must be based solely on New York state law, using the appraised value at the time of sale for a non-co-op property or the sales price for a co-op property without an adjustment reflecting excess IPC contributions. See LTV Ratio Determination in New York State in B7-1-01, Provision of Mortgage Insurance, for additional information. Scrutinize all loan and sales contract documents, including but not limited to the sales contract, the loan estimate, the loan application, the appraisal report, and the settlement statement. Ensure that all elements of the settlement statement were taken into consideration during the underwriting process. Ensure that fees and expenses are consistent between all documents. Analyze any differences and review any discrepancies. Recent Related Announcements The table below provides references to recently issued Announcements that are related to this topic. Announcements Issue Date Announcement SEL-2025-03 May 07, 2025 Announcement SEL-2025-02 April 02, 2025 Published May 6, 2026 410 Announcements Issue Date Announcement SEL-2023-08 September 06, 2023 Announcement SEL-2021-07 August 04, 2021 Announcement SEL-2019-07 August 07, 2019

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