PITI Reserves Law and Legal Definition

PITI reserves means a cash amount that a borrower has after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months. For example, if a borrower’s PITI payment is $1365/month and the lender demands 6-month PITI reserves, the borrower has to show an account or liquid assets of at least $8190.

Lending institutions often use a multiple of the PITI payment amount as the minimum amount that a borrower must state as a reserve when qualifying for a mortgage. The reserve shows that the borrower could continue to pay his/her monthly payment for several months even if his/her income was temporarily interrupted. This reduces the risk of default, making the borrower a safer bet for the lender.