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High combined loan-to-value (CLTV) Home Equity Lines of Credit (HELOCs) are increasingly popular among borrowers looking to maximize their home equity. However, one of the critical underwriting hurdles that borrowers often overlook is the cash reserve requirement. This guide explores how cash reserves factor into high-CLTV HELOCs, why lenders require them, and how to prepare your finances accordingly.
What Are Cash Reserves in Mortgage Lending?
Cash reserves refer to the amount of liquid assets a borrower must have on hand after closing. These assets assure lenders that the borrower can continue making payments in case of financial disruption.
Acceptable forms of cash reserves may include:
- Checking and savings accounts
- Money market funds
- Retirement accounts (depending on accessibility)
- Stocks and mutual funds
The reserve requirement is typically expressed in months of housing payments, including principal, interest, taxes, insurance (PITI), and HOA dues if applicable.
Why Cash Reserves Matter in High-CLTV HELOCs
HELOCs with high CLTV ratios—often exceeding 85%—pose a greater risk to lenders because the homeowner has less equity as a buffer. As a result, lenders impose stricter underwriting criteria, and cash reserve requirements are often heightened for these borrowers.
High-CLTV HELOC borrowers are typically required to maintain 3–12 months of reserves, depending on:
- CLTV ratio
- Credit score
- Debt-to-income (DTI) ratio
- Type of property (primary residence vs. investment property)
- Employment history and income stability
Key Point:
High-CLTV borrowers with strong reserves are viewed as less likely to default, increasing the chance of loan approval.
How Much in Reserves Should You Expect?
While reserve requirements vary by lender and loan product, here are some general benchmarks:
| CLTV Range | Minimum Reserves |
| 80–85% | 2–4 months of PITI |
| 85–90% | 6 months of PITI |
| Over 90% | 9–12 months of PITI |
Tip: Some lenders allow flexibility if the borrower compensates with higher credit scores or lower DTI.
Strategies to Meet Reserve Requirements
If you’re close to qualifying but falling short on reserves, consider the following:
- Shift Funds into Liquid Accounts
Move eligible assets from restricted accounts (like IRAs with penalties) to more accessible ones. - Consolidate Debts to Lower DTI
Lowering your debt burden may offset stricter reserve demands. - Delay Non-Essential Spending
Temporarily hold off on large purchases to maintain or build reserves. - Leverage Gift Funds (If Allowed)
Some lenders accept cash gifts for reserves—check guidelines.
Compliance and Documentation
Lenders typically require:
- Two months of bank statements
- Proof of ownership and valuation of investment accounts
- Paper trails for large deposits or asset transfers
Misrepresenting reserves or providing unverifiable assets can result in denial or legal consequences.
Related reading: Mortgage Documentation Checklist: Everything You Need to Apply Smoothly
FAQs About Cash Reserves and High-CLTV HELOCs
Can I use retirement funds as reserves?
Yes, if they are vested and accessible. However, only a portion may be counted based on withdrawal rules.
Are reserves needed for all HELOCs?
Not always. Reserves become more critical with higher CLTV ratios and riskier borrower profiles.
How are reserves different from closing costs?
Closing costs are upfront expenses; reserves are funds left over after closing.
Read Next
- Discovering Investment Property HELOC Lenders in Every State
- What Can You Use a HELOC For? Your Questions Answered
Unlock Your Home Equity with Figure
- Approval in 5 minutes. Funding in as few as 5 days
- Borrow $20K-$400K
- Consolidate debt or finance home projects
- Fastest way to turn home equity into cash
- 100% online application
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
