Reserves

Reserves are liquid funds held in a borrower's accounts that the lender requires to remain available after closing. They demonstrate the borrower can continue making mortgage payments through periods of vacancy, repair, or income disruption.

For real estate investors, reserves are one of the three pillars of DSCR qualification — alongside credit score and LTV. Stronger reserves can unlock better pricing tiers, lower DSCR floors, and access to programs like no-ratio DSCR.

How reserves are measured

Reserves are measured in months of PITIA — the property's all-in monthly housing cost (Principal + Interest + Taxes + Insurance + Association dues).

If a property's PITIA is $2,400/month and a lender requires 6 months of reserves, you need $14,400 in liquid reserves at closing — held in your name, in cash or near-cash accounts, after all closing costs and down payment have been paid.

What counts as reserves

Counts:

• Checking and savings accounts (at face value)
• Money market accounts
• Stocks and mutual funds (typically discounted to 70-80% to account for market volatility)
• Vested retirement accounts (401k, IRA — typically 60-70% to account for early-withdrawal penalties)
• Bonds and CDs

Doesn't count (or counts heavily discounted):

• Cash on hand (must be in a verifiable account)
• Cryptocurrencies (most lenders won't accept)
• Equity in other real estate (not liquid)
• Cars, boats, jewelry (not liquid)
• Anticipated bonuses or commissions (not yet received)

Typical reserve requirements by program

• Standard DSCR: 6 months PITIA on the subject property.
• Sub-1.0 DSCR: 9-12 months PITIA, sometimes more for deeper sub-1.0 floors.
• No-ratio DSCR: 9-12 months PITIA on the subject property, sometimes plus reserves on other financed properties.
• Multiple-property portfolios: Some lenders require 2-6 months PITIA on EACH financed property in the portfolio, in addition to the subject property.
• Hard money / bridge: Often requires 6 months interest payments + reserves for property carrying costs.

Why lenders care about reserves

Reserves are the lender's protection against the gap between income disruption and recovery. If a property goes vacant for 4 months between tenants, reserves cover the mortgage. If a major repair is needed, reserves fund it. If a tenant defaults and eviction takes 3 months, reserves carry the property.

From the lender's perspective: a borrower with strong reserves is significantly less likely to default during a temporary income disruption. From the borrower's perspective: reserves enable scaling without overleveraging.

How investors should think about reserves

Build reserves before scaling. An investor with 3 properties and weak reserves is more vulnerable than one with 1 property and 24 months of reserves. Don't outpace your liquidity.

Reserves multiply across portfolio. If you own 5 properties at $2,000 PITIA each, you need $10K/month to cover all PITIA. 6 months reserves = $60K liquid. 12 months = $120K. Plan accordingly.

Reserves unlock program tiers. Strong reserves can drop your DSCR floor from 1.0 to 0.85 or qualify you for no-ratio. The carrying cost (opportunity cost of liquidity) often pays for itself in better loan terms.

Reserves are seasoned. Most lenders require reserves to be in your account for 60-90 days before closing. Last-minute transfers from another source raise underwriting flags. Plan ahead.

Rate Hero's take

Reserve strength is one of the highest-leverage variables an investor can control. We'll review your reserves alongside the property and tell you which DSCR program tier you qualify for. If you're close to a better tier (e.g., 5 months of reserves but 6 unlocks better pricing), we'll tell you. Often, holding off closing for 30 days to season additional reserves saves more on the loan over its term than you'd lose in delayed acquisition.