What are PITI Reserves When Buying a House?
Buying a home involves more than just saving for a down payment. Many future homeowners don't realize they need extra money in the bank after closing - these funds are called PITI reserves. I'll walk you through everything you need to know about PITI reserves and why they matter for your home purchase.
PITI Reserves: The amount of money a borrower must have in savings after paying their down payment and closing costs, typically expressed as a number of monthly mortgage payments. These reserves act as a financial safety net and usually include enough funds to cover principal, interest, taxes and insurance (PITI) payments for a specified period.
Breaking Down the Components of PITI
Let's look at what makes up your monthly mortgage payment:
Principal
The principal is the amount you borrowed to buy your home. Each month, part of your payment goes toward reducing this balance. At the start of your loan, a smaller portion of your payment reduces the principal, but this amount increases over time.
Interest
This is what you pay the lender for borrowing the money. Your interest rate affects your monthly payment significantly. The higher the rate, the more you'll pay each month. Early in your loan, most of your payment goes toward interest.
Taxes
Property taxes vary by location. Your lender often collects these monthly and holds them in an escrow account until they're due. This helps make sure your taxes get paid on time and protects their investment in your property.
Insurance
You'll need homeowners insurance to protect your property. If you put less than 20% down, you might also need private mortgage insurance (PMI). Like taxes, these payments often go into an escrow account.
PITI Reserve Requirements
Different loans have different reserve requirements:
Conventional loans: Often require 2-6 months of reserves
FHA loans: Might not require reserves for single-family homes
VA loans: Typically don't require reserves
Jumbo loans: May require 6-12 months or more
Your specific situation affects how much you'll need in reserves. Factors include:
Your credit score
The type of property you're buying
Whether it's your primary home
Your employment status
Acceptable Sources for PITI Reserves
Lenders accept various assets for reserves:
Eligible Assets
Money in checking and savings accounts
Stocks, bonds, and mutual funds
Retirement accounts (with restrictions)
Gift funds (after meeting down payment requirements)
Non-Eligible Assets
Credit card cash advances
Personal loans
Money from your down payment
Common Questions About PITI Reserves
How long must I keep reserves in my account?
You'll need the funds available through closing, but maintaining reserves afterward is smart financial planning.
Can I use my 401(k) as reserves?
Yes, but lenders typically only count a portion of retirement accounts, often 60% or less.
Do reserves affect loan approval?
Yes! Strong reserves can help offset other weaknesses in your application.
Strategies for Building PITI Reserves
Start saving early and:
Set up automatic savings transfers
Track your spending
Look for areas to cut back
Consider a side job for extra income
The Bigger Financial Picture
PITI reserves are just one piece of your mortgage qualification. They work alongside your:
Credit score
Debt-to-income ratio
Employment history
Down payment
Tips for Success
Start saving before house hunting
Keep good records of your assets
Don't make large deposits without documentation
Talk to a mortgage professional early
Ready to Start Your Home Buying Journey?
PITI reserves play a key role in your home purchase. At Bellhaven Real Estate, we connect you with trusted lenders who can explain your specific reserve requirements. We'll guide you through every step of buying your new home. Stop by our office to learn more about making your homeownership dreams reality.