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Lenders, Loan Officers, & Your Mortgage

All About Mortgage Reserves and Closing Costs

Jennifer Samson | 1 Mar 2021

After four years of marriage, Eric and Denise decided it was time to stop renting and buy a home. Homes were expensive in their preferred area, but the couple had good incomes and some savings to cover a down payment. Overall, they felt good about buying and prepared financially. After months of looking they fell in love with a home near both of their offices and close to family.

Then, reality hit. For the first time they really looked at all the expenses, including closing costs and the mortgage reserves they would need to pay due to the home’s high price.

And what had seemed possible was no longer so, at least until they managed to save more.

One of the most daunting parts of homebuying is trying to figure out exactly how much money you’ll need to close on your new home.

At Landed, two of the most common questions we get from homebuyers trying to budget are about buyer’s closing costs and mortgage reserves. Let’s look at both below.

Buyer’s closing costs

Buyer’s closing costs are the out-of-pocket expenses that you are required to pay in order to get a home loan, and can include the costs of having the home you’re considering buying appraised and inspected, as well as the fees involved, including attorney costs, loan origination fee, and more.

When you buy a home, most of the closing costs fall to you, meaning you’ll likely pay more in closing costs than the seller (they usually cover the real estate agent’s commission and a few smaller fees).

In general, your closing costs as a buyer should range between 2% and 5%. So if you are buying a home priced at $800,000, your closing costs will likely range from between $16,000 and $40,000.

Mortgage reserves

Mortgage reserves are a way for lenders to be comfortable making a loan to a customer who has blemished credit or is investing in additional properties, such as a second home or multi-unit property.

Should the worst come to pass and something causes you to be unable to make your mortgage payment, these reserves give the lender more confidence that you’ll have the time you need to get back on your feet while your mortgage is paid via the reserves.

Mortgage reserves are usually only required with jumbo financing, also called non-conforming conventional mortgages. For 2021, the conforming loan limit for one-unit homes in most counties nationwide is $548,250. However, in high-cost areas (for example, in the Northeast and on the West Coast), the conforming loan limit is $822,375 — and is even higher elsewhere. Jumbo loans are considered riskier to lenders because Fannie Mae and Freddie Mac don’t guarantee them — meaning if you default they have no protection.

Jumbo loans are typically available with either a fixed-interest rate or an adjustable rate, and they come with a variety of terms.

So how much in mortgage reserves will you need? Well, the frustrating answer is “it depends.”
In some cases it can be as little as three months worth of mortgage payments or as many as a full year of payments. It all depends on your financial profile.


A great thing about working with Landed and Landed Home Loans, an affiliate business–– in addition to our down payment program and other support –– is that we will be there to answer your questions from the moment you start your homebuying journey to when you’re deciding where to put the sofa in your new home. We can help you prepare and avoid unwanted financial surprises down the road, just reach out and let us know what you need!

Want to learn more? Check out these articles:

How Much Are Closing Costs? Plus: How to Reduce Closing Costs
What Mortgage Down Payment Do You Need? A First-Time Borrower's Guide

Lenders, Loan Officers, & Your Mortgage Closing on Your Home

About the Author

Jennifer Samson

Jen is a Dreamer/Do-er for innovative, community-enriching, and vital reimagining of access to and creation of public space and housing in Los Angeles. Prior to working at Landed, as the Director of Real Estate & Placemaking at River LA she helped to define and build a new vision of the LA River working with leading national and LA philanthropists as well as both local and world-renowned design icons such as Frank Gehry to dream a new dream for her beloved LA. Jen has successfully managed $150M+ in real estate throughout various stages of the project development cycle. She has worked on both private and public transactions, ranging from ground-up affordable housing rentals to mixed-use, transit-oriented, for-sale communities to public-private-partnership open space, infrastructure, and facilities. Jen has an enthusiastic love for technology and data, especially consumer-facing software and services because they have the power to make life easier and spark joy. She is a LEED accredited professional and holds both a Masters of Business Administration and Real Estate Development which she obtained from USC as a full-tuition fellow of the Consortium for Graduate Study in Management.

Looking for Landed's down payment program? Due to a temporary unavailability of DPP investment funds, all Landed metro areas are being put on a DPP waitlist effective September 8, 2022. You can read all the details (including FAQs) here if you would like to know more.