What term is used for funds that a lender requires a borrower to have available after closing to cover mortgage payments?

Reserves refer to the funds that a lender requires a borrower to maintain after closing to ensure that they can cover their mortgage payments and other related costs. These reserves serve as a safety net, demonstrating the borrower's ability to manage future payments even in the face of unforeseen circumstances, such as job loss or unexpected expenses.

This requirement is a crucial part of the underwriting process, as it helps lenders assess the borrower's financial stability and reduces the risk of default. Reserves might include savings or liquid assets that are readily accessible and can typically cover a specific number of months of mortgage payments.

In contrast, a down payment refers to the upfront payment made by the borrower at the time of closing. Contingency funds are additional funds set aside for unexpected expenses, often not specifically tied to mortgage payments. The first-month payment simply pertains to the initial mortgage payment due and does not represent a cushion or safety net for future obligations. Thus, reserves are essential for ensuring a borrower’s ongoing financial reliability post-closing.