DSCR Direct

Reserves are the liquid assets you have available after closing - money you can access to cover mortgage payments if the property is vacant or needs repairs. Every DSCR lender requires some level of reserves, and understanding what counts (and what does not) can be the difference between qualifying and being denied.

How Many Months of Reserves Are Required?

The standard DSCR reserve requirement is 6-12 months of the monthly PITIA payment. If your total PITIA is $2,000/month, you need $12,000-$24,000 in verifiable liquid assets after your down payment and closing costs are deducted. The exact requirement depends on the lender, your FICO score, LTV, and DSCR ratio. Lower FICO, higher LTV, or lower DSCR typically increases the reserve requirement. Some lenders require as little as 3 months for strong scenarios; others require 12+ months for lower FICO or no-ratio programs.

What Counts as Reserves

Checking and savings accounts count at full value - these are the easiest reserves to document. Brokerage and investment accounts (stocks, bonds, mutual funds) count at full market value. Money market accounts and CDs count at full value. Cryptocurrency held on major exchanges may count with some lenders, though policies vary. Cash value of life insurance counts with most lenders. The key requirement is that the assets must be liquid - you need to be able to access the money if needed.

Retirement Accounts: The 60-70% Rule

Retirement accounts (401k, IRA, Roth IRA, SEP IRA, 403b) count toward reserves but at a reduced value - typically 60-70% of the account balance. The discount accounts for taxes and potential early withdrawal penalties. A $100,000 IRA counts as $60,000-$70,000 in reserves. For retirees who are 59.5 or older (no early withdrawal penalty), some lenders count retirement accounts at a higher percentage or even full value. Retirement accounts are often the largest reserve source for investors, so this rule matters.

What Does Not Count as Reserves

Equity in the subject property does not count - you cannot use the down payment you just made as reserves. Equity in other real estate generally does not count unless the lender has a specific policy allowing it. Business bank accounts for LLCs or corporations may not count unless you are the sole owner and can demonstrate access. Physical cash, gift cards, or non-liquid assets do not count. Funds that are pledged as collateral for other loans or restricted in any way are excluded.

How Reserves Affect Your Rate and LTV

Higher reserves can unlock better pricing or higher LTV. Some lenders offer rate improvements for borrowers with 12+ months or 24+ months of reserves. At the lower end, insufficient reserves can limit your maximum LTV or disqualify you from certain programs. Think of reserves as a compensating factor - strong reserves can offset a lower FICO score, higher LTV, or lower DSCR. If one part of your profile is weaker, boosting reserves can help.

Tips for Meeting Reserve Requirements

Consolidate accounts so your reserves are easy to document on 2 months of bank statements. Avoid large unexplained deposits in the months before applying - they raise questions. If you are close to meeting the requirement, transfer funds from a retirement account to a checking account (the retirement account already counted at a discount, so moving the money to checking increases its reserve value). Gift funds from family can count toward reserves with a gift letter. Plan your down payment and reserves together - do not overextend on down payment at the expense of reserves.

Check Reserve Requirements for Your Scenario

Run your scenario at dscrdirect.net to see available programs and their reserve requirements. DSCR Direct displays lender-specific requirements so you can choose a program that matches your available reserves. If you are not sure whether your assets qualify, email info@dscrdirect.net with your asset breakdown for a quick assessment.