What calculation must be used for assets to determine cash reserves?

To determine cash reserves for USDA Rural Housing Loans, the calculation that must be used is the 2-month average. This approach looks at the borrower’s bank statements from the most recent two months to assess their financial stability and ability to afford ongoing payments. By using this 2-month average, lenders are able to gauge a borrower’s current cash flow and reserve funds, ensuring that they have sufficient financial resources to cover mortgage payments, unexpected expenses, and other monthly obligations after closing on the loan.

Employing a 2-month average provides a snapshot of more recent financial behavior compared to longer averages, which might include outdated financial information influenced by past circumstances. This is particularly important for gauging current financial health and immediate liquidity. It ensures that the lender has a reliable understanding of the borrower’s cash resources, supporting responsible lending practices and reducing risks associated with default.