Does FHA have cash reserve requirements?

The lender must verify and document reserves equivalent to three months’ Principal, Interest, Taxes, and Insurance (PITI) after closing for all mortgages for three- to four-unit properties.

For manually underwritten mortgages, the lender must very and document reserves equivalent to one month’s PITI after closing for one- to two-unit properties.

The lender must verify and document all assets submitted to the Automated Underwriting System (AUS). Reserves refer to the sum of the borrower’s verified and documented liquid assets minus the total funds the borrower is required to pay at closing.

Reserves do not include:

  •       the amount of cash taken at settlement in cash-out transactions;
  •        incidental cash received at settlement in other loan transactions;
  •        gift funds;
  •        equity in another property; or
  •       borrowed funds from any source.

For additional information see Handbook 4000.1 II.A.4.d.i.(C); II.A.5.c.i.(C) available at