What are PITI reserves?

PITI reserves refer to the savings that a borrower is required to have after making a down payment when obtaining a mortgage. The term PITI stands for Principal, Interest, Taxes, and Insurance, which are the essential components of a monthly mortgage payment. Lenders often require PITI reserves to ensure that borrowers have enough savings to cover these ongoing costs for a certain number of months in case of financial difficulties. This requirement helps to provide additional security for the lender, ensuring that the borrower can still meet their payment obligations even if they encounter unexpected expenses or a loss of income.

The other options describe different aspects of the mortgage process but do not align with the concept of PITI reserves. For instance, amounts paid to close a loan pertain to the upfront costs associated with finalizing a mortgage, while cash on hand post-closing refers to the borrower's financial situation after the transaction is completed. Monthly payment components merely describe what makes up a mortgage payment but don’t specifically address the requirement for reserves.