We are finally being submitted for UW. When asking about Earnest Money, I was told we will need yet another $1000 to make an offer on a house. I thought part of the reserves including all of our upfront costs! If have reserves of $7000 to cover Earnest Money, Inspection, Insurance premium, etc. Are now expected to save another $1,000 for Earnest Money, $550 for inspection and reinspection, $700 for annual insurance premium? How is that possible? I thought we were to draw from the reserves. Can someone please clarify how this works?
Hi @queenbhrh917. Earnest money is part of the reserve fund even if you pay it now. With a $1000 paid in earnest money and $6000 in hand, you still would have reserve fund of $7000, as that earnest money will be adjusted in the closing costs. Of course the exact amount of reserve funds will be dependent upon the house you will be buying and your MC would be able to provide that number, but seven grands seem like more than enough for the reserve funds as long as your house is less than 500k-700k or so 🙂 P.
You appear to be confusing your required reserves, which is one or two months of mortgage payments saved as an emergency fund, with your Minimum Required Funds (MRF). The reserves are one part of your MRF.
The earnest money and inspection fees will of course have been spent at that point, and you should easily be able to account for that through your bank statements.