Work Around For Minimum Reserve Requirements

[Jake Thompson]

Hi everyone, my wife and I found a duplex that will cash flow about $500/mo (with both units rented) and want to use a VA loan to house hack it. We've house hacked once before, so we have some experience. I also worked in property management for a year.

Our challenge is that we don't have hardly any savings built up and the lender is asking for 6 months PITI as reserves. We're sitting at about 3 months reserves at the moment. Is there any way (legally/ethically) to get around this? Should we even try to get into a property with so little reserves?

I asked, and we cannot receive the money as a gift, at least according to this particular lender. I can ask more lenders, but I wanted to get feedback from the BP community first. Thanks!

[Zack Karp]

@Jake Thompson

With VA loans for 2-4 unit properties, in order to use rental income to qualify, you need 6 months PITI reserves. This is a VA guideline, not a lender guideline.

However, if you can qualify without needing the rental income from the other unit(s), then you don't need reserves. And if a lender is saying you do, then THAT is an overlay. And VA financing can sometimes have very generous debt-to-income ratios. I have approved people with DTI's over 70%, because the VA is more concerned about residual income (the amount left over each month). That's where working with the right lender makes a big difference. If you need a rockstar lender in OR, let me know.

Hope that helps!  TYFYS, and best of luck!