Can Retirement Funds Be Used as Cash Reserves for Mortgages?

When you apply for a mortgage, the lender will verify that you have enough income to make your monthly payments. Most lenders also require you to have enough money in reserves to make your mortgage payments in case your monthly income decreases temporarily in the future. You can use most of your assets, including retirement, as a source of reserves.

Reserve Requirements

Lenders define reserves as funds that you can obtain by selling an asset or withdrawing money from an account. To qualify for a conventional loan, you must have enough money in reserves to cover up to six months' worth of mortgage payments, depending on your loan-to-value ratio, credit score and debt-to-income ratio. To qualify for a mortgage loan insured by the Federal Housing Administration, you must have enough money in reserves to cover at least three months' worth of mortgage payments.

Using Retirement Funds

For both conventional and FHA-insured loans, you can use your retirement funds as a source of reserves for your mortgage approval, as long as they are available for withdrawal. You cannot use any retirement funds that are not yet vested or will be unavailable until you reach retirement age. To account for income taxes and any early withdrawal penalties, lenders will typically count only 60 percent of retirement account funds toward your reserves.


If you are using retirement funds toward your cash reserves, most lenders will require you to provide documentation that shows evidence of the amount and availability. This documentation must include a recent statement showing the exact amount of your retirement funds that are currently vested, as well as clear evidence that you could withdraw them immediately if you needed them. Lenders won't count funds that only become available in the event of job termination.


Although retirement benefits are usually acceptable sources of reserves, employee stock options, stocks held in unlisted corporations and stocks that haven't vested are not. Even though you need to prove that your retirement funds are available for immediate withdrawal, lenders won't require you to actually withdraw them to close the loan. In addition to meeting a lender's cash reserve and income requirements, you must also meet minimum credit requirements to qualify for a new mortgage.

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About the Author

Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.