Compensating factors may be used to justify approval of manually underwritten mortgages with qualifying ratios as described in Handbook 4000.1 II.A.5.d.viii. Verified and documented cash Reserves may be cited as a compensating factor subject to the following requirements.
• Reserves are equal to or exceed 3 total monthly Mortgage Payments (1 and 2 units); or
• Reserves are equal to or exceed 6 total monthly Mortgage Payments (3 and 4 units).
Reserves are calculated as the Borrower’s total assets less:
• the total funds required to close the mortgage;
• borrowed funds; and
• cash received at closing in a cash-out refinance transaction or incidental cash received at closing in the mortgage transaction.
For additional information see Handbook 4000.1 II.A.5.d.viii; II.A.5.d.ix(B) available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh