Reserve Requirements on a DSCR Loan, Explained
Reserves are liquid funds you must show you have available — typically expressed as a number of months of PITIA — but they're not collected at closing like a down payment. They just need to exist, be documented, and often be sourced/seasoned in your accounts.
NightYield Editorial
STR-DSCR research & underwriting desk
Published 2026-07-25
How the requirement is actually expressed and calculated
Reserve requirements are stated as a number of months of the subject property's PITIA, not a flat dollar figure. If PITIA is $2,600/month and the requirement is 6 months, the reserve requirement is $15,600 in verifiable liquid or near-liquid assets — separate from the down payment and closing costs, which are spent at closing.
Reserves are usually verified through recent bank, brokerage, or retirement account statements, and many lenders only count a portion of retirement or stock account balances (since those aren't fully liquid without penalty or timing risk).
Why the requirement moves with your DSCR ratio
Reserve requirements typically scale with risk, and a property's DSCR ratio is one of the clearest risk signals a lender has. A property comfortably above 1.25 DSCR is already demonstrating a strong income cushion, so reserve requirements tend to be lighter. A property near or below 1.0 DSCR has little or no income cushion of its own, so the lender leans more heavily on the borrower's reserves as the backstop instead.
| DSCR tier | Illustrative reserve pattern |
|---|---|
| 1.25+ | Lighter reserve requirement — the property's own cushion does more of the work |
| 1.0–1.24 | Moderate reserve requirement, often several months of PITIA |
| Below 1.0 | Heavier reserve requirement, since the property alone doesn't cover its payment |
This is the same logic that shows up around STR seasonality — a market with a strong but uneven income calendar often carries a higher reserve expectation than a steady long-term rental, precisely because the monthly cushion isn't as consistent.
What actually counts, and getting your documentation ready
Checking and savings balances generally count in full. Stocks, bonds, and mutual funds are often counted at a discounted percentage of value to account for market risk. Retirement accounts (401k, IRA) are sometimes counted at a further discount, reflecting withdrawal penalties and taxes. Funds need to be sourced and often seasoned (sitting in the account for a defined period) to avoid the appearance of an undisclosed loan propping up the file.
Key takeaways
- Reserves are expressed as months of PITIA and must be documented as available, separate from down payment and closing funds.
- Lower DSCR ratios typically require more months of reserves, since the property itself has less income cushion.
- Checking/savings usually count in full; stocks and retirement accounts are often counted at a discount.
- Funds often need to be sourced and seasoned in the account for a defined period before closing.