VA home loans require no down payment. That’s perhaps the most admired feature. And there are certain closing costs that the veteran is not allowed to pay, which reduces the overall cash-to-close requirement. In fact, closing costs can practically be eliminated on most VA loans by taking advantage of a lender credit. Yet once the closing takes place and the home becomes yours, take care over the next few months and keep your cash reserves intact. What are cash reserves?
On the face of it, cash reserves are simply a liquid account you own such as a checking or savings account that has sufficient funds to cover expenses. Lenders have a more technical view of cash reserves and tally the amounts as the number of house payments left in the bank after the closing takes place. If a mortgage payment, including taxes and insurance, is $1,500 a lender might require two months reserves are verified as available after the closing, or $3,000.
VA loans don’t require cash reserves but they do require residual income to be verified. Residual income is unique to VA loans and is the amount left over each month after all withholdings from a paycheck, expenses and monthly credit obligations. Yet even though cash reserves aren’t a requirement for a VA loan approval it’s prudent to make sure you have sufficient funds in the bank.
It’s common for new homeowners to make trips to the appliance store to upgrade a kitchen or replace a hot water heater or buy brand new furniture. There can be utility deposits or homeowner’s association dues that need to be addressed. When borrowers are asked to come to a closing table with down payment money and closing costs the lender wants to make sure there are some funds still in the bank account to take care of everyday expenses.