The Quick Read: Lenders in a DSCR network count only a percentage of your vested IRA balance toward reserves, not the full statement value, and that percentage is set by each program rather than by any regulator, so you should size your reserves on the discounted number.
- Reserves run about 6 months of PITIA on many files, and about 9 months above $1,500,000, subject to lender guidelines.
- Only the vested, accessible balance counts, and you document it with a statement.
- You generally do not have to cash out the IRA. It is verified, not drained.
- The same dollars cannot cover your down payment and your reserves.
- Account type and your age can change the credit, so ask for the percentage in writing.
What Reserves Actually Are
Reserves are money you still hold after closing. They show the lender you can keep paying the loan if a unit sits empty or a roof fails.
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Lenders measure them in months of PITIA. That stands for principal, interest, taxes, insurance, and any association dues on the property. Six months of reserves means six monthly payments’ worth of verified assets left over.
A DSCR loan qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. Your personal income is not the test. That puts more weight on reserves, because they are the main place the lender looks at you instead of the property.
How Underwriting Treats an IRA, Step by Step
The process is the same on almost every file we place across our wholesale network. Here is the order.
1. Find the required months. The requirement depends on loan size, leverage, credit, and transaction type. On most files it is commonly around 6 months of PITIA. Above $1,500,000 it typically steps up to about 9 months. Conservative rate-and-term refinances at modest leverage under that size can see reserves waived on some programs.
2. Take the vested balance. Vested means the portion you own outright and can actually reach. For a traditional IRA, that is usually the whole account. Employer plans can carry unvested pieces, and those do not count.
3. Subtract anything borrowed against it. If a loan is secured by the account, expect the lender to net it out of the balance.
4. Apply the program’s percentage. This is the haircut. The lender credits a share of the balance, not the full amount. The share varies by program, account type, and sometimes your age.
5. Remove money you are using elsewhere. Reserves are measured after closing. Funds going toward the down payment or closing costs cannot also be reserves.
6. Convert to months. Divide the credited amount by the monthly PITIA. If the result meets the required months, the reserve test is satisfied.
Underwriters usually want the most recent statement showing the vested balance and the account holder’s name. Lenders vary on how many months of statements they want, so ask before you pull documents.
Why Not 100%?
A retirement balance is not cash. Markets move it, and turning it into spendable money takes time.
The tax cost is the bigger reason. The IRS says you can take IRA distributions at any time, but they are generally taxable income. A 10% additional tax can apply if you are under 59½, and there is no exception just for hardship. Vanguard explains that the additional tax generally drops away after 59½, though income tax can still apply.
The haircut is a flat program percentage that stands in for those costs. It is not a calculation of your personal tax bill. Tax treatment varies; consult a qualified professional.
What the Haircut Does to Your Math
The percentage is a program rule. No federal agency sets it, and you should be wary of any single number presented as universal. The credit can differ by program, by lender, and by whether the account is traditional or Roth.
Here is an illustration. The 80% credit below is a hypothetical, not a program figure or a quote.
- Say a file needs 9 months of reserves because the loan is above $1,500,000.
- Say the program credits the IRA at a hypothetical 80%.
- You would need a vested balance equal to about 11.25 months of PITIA to reach 9 months of credit. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
That is the point to remember. A large statement balance buys fewer months than it looks like. A bigger haircut means you need a bigger account for the same result.
Run it the other direction before you apply. Take your vested balance, multiply by the program percentage, and divide by monthly PITIA. That gives your months. The calculator on this site can help you test the payment side as an illustrative estimate, not a quote.
Why Jumbo Size Changes the Picture
On a jumbo DSCR loan, two things move together. The monthly PITIA is larger, and the required number of months is typically higher. Both raise the dollar amount of reserves you must show.
Our standard programs go up to $3,000,000, and above $2,500,000 the network generally holds to 30-year fixed structures. Those larger files are where reserves get tested hardest.
Retirement money can cover a lot of that requirement. Still, a jumbo borrower often does best with a mix of cash and retirement assets, because cash counts at face value and the IRA does not.
A bigger down payment can lower the monthly payment and lift your coverage ratio. It does not erase reserve rules, leverage caps, or credit floors. The strongest files clear both tests: enough equity and enough rental coverage.
A Mixed-Asset Example
Consider an investor buying a rental with a loan above $1,500,000. Reserves are required at about 9 months.
- Cash in a bank account covers 3 months of PITIA after closing.
- That leaves 6 months to cover from the IRA.
- At a hypothetical 80% credit, the IRA needs a vested balance of about 7.5 months of PITIA.
Order matters here. Count cash first, because it is worth full value, then fill the gap with the discounted asset. Keep down payment and closing funds separate from the balance you present as reserves. If the same dollars show up in both places, the underwriter will remove them from one.
If the IRA alone falls short, the options are straightforward:
- Add other liquid assets, such as brokerage or money market funds.
- Lower the loan amount so the requirement drops.
- Ask about programs that carry a lower month count at your leverage.
Each option stays subject to lender guidelines and underwriting review.
Where the General Rule Breaks
Traditional versus Roth
Vanguard’s distribution rules note that Roth contributions can generally come out without tax or penalty, while earnings taken before 59½ are generally taxed and penalized. That split is one reason some programs treat Roth money differently. Treatment is program-specific, so confirm it before you plan around it.
Age 59½
The early-withdrawal tax generally stops at 59½. Some programs credit a higher percentage for borrowers past that age, and some do not. Ask for the figure that applies to your age.
Employer plans versus IRAs
Employer plans and IRAs are not the same to a lender. The University of Michigan HR points out that some early-withdrawal exceptions apply to employer plans but not to IRAs. In-service access to an employer plan can also be limited, which is why underwriters ask whether the balance is vested and reachable. Rolling a plan into an IRA can change both the tax picture and how a lender sees it.
Penalty exceptions
A penalty exception does not change the haircut. Because the haircut is a flat program percentage, even a borrower who qualifies for an exception gets the same credit as everyone else.
Cash-out refinances
Whether cash-out proceeds can also count as reserves varies by program. Cash-out refinances top out around 75% LTV on standard rentals, and about 6 months of seasoning is the common expectation. Ask how your lender treats proceeds before you rely on them.
Ineligible properties
Reserves cannot fix a property type that is not offered. Manufactured homes, log homes, and barndominiums fall outside these DSCR programs.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
Does the IRA Have to Be Cashed Out?
Generally no. The lender documents the balance and counts a share of it. You are not asked to take a distribution, so no tax event is triggered by showing the account.
Actually withdrawing the money is a different matter. That is a distribution, and the tax rules described above apply. Using the IRA only as a verified asset avoids that, and the cost is the haircut.
This also explains a common mix-up. Your retirement income does not qualify you for a DSCR loan. The account serves as an asset, and the property’s rent carries the qualification.
Key Terms Defined
Reserves: Verified assets you still hold after closing, measured in months of PITIA.
PITIA: The full monthly obligation on the property: principal, interest, taxes, insurance, and association dues.
Haircut: The share of an asset’s value a lender does not count, so only a percentage becomes reserve credit.
Vested balance: The part of a retirement account you own outright and can actually access.
Jumbo: A loan size above standard conforming limits. In our network, reserve requirements typically step up above $1,500,000.
DSCR: Debt service coverage ratio, which compares the property’s rent to its PITIA. A 1.00 is where select programs start.
Your Pre-Application Checklist
- Pull your most recent full IRA statement with the vested balance and your name visible.
- Confirm there is no loan against the account.
- Ask for the program’s percentage for your account type and age, in writing.
- List cash and other liquid assets, and count them at full value.
- Set aside down payment and closing funds so they are not counted twice.
- Divide your credited total by the expected PITIA to see your months.
Clearing the coverage ratio is not the same as positive cash flow. DSCR compares rent to PITIA only, and repairs, vacancy, management, and utilities sit outside it. Reserves are your cushion for those costs too.
For more on how retirement balances are treated as assets in general, see Lendmire’s piece How Much of an IRA Counts as Assets on a Mortgage Application?. The complete DSCR loans guide covers the rest of the program mechanics.
Frequently Asked Questions
Does the full IRA balance count as reserves?
No. Programs credit a percentage of the vested balance, and that percentage is set by each program. The credit can differ by account type and age, so get the figure for your file in writing.
Do I have to withdraw money from my IRA to use it?
Generally not. The lender documents the balance with a statement and counts a share of it. A real withdrawal is a distribution, which carries the tax consequences described above.
Does a Roth IRA count differently from a traditional IRA?
It can, because Roth contributions and earnings are taxed differently on early withdrawal, and some programs reflect that. Treatment is program-specific, so ask before you assume.
Can the same money be my down payment and my reserves?
No. Reserves are measured after closing. Funds used for the down payment or closing costs are removed before reserves are counted.
What if my IRA is not enough?
Combine it with cash or other liquid assets, lower the loan amount, or ask about programs with a lower month count at your leverage. Each path is subject to lender guidelines and underwriting review.
If You Are Ready to Run Your Numbers
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. As a broker, it arranges financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. Programs are subject to lender guidelines and are not a commitment to lend.
About Lendmire
As a DSCR and non-QM mortgage broker, Lendmire — NMLS# 2371349 — connects investors with wholesale lending channels across 41 markets, including Washington, D.C. The property’s rental income, not the borrower’s tax returns, is central to lender review, which works for self-employed operators and portfolios beyond four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. IRS – Retirement plans FAQs regarding IRAs distributions
2. Vanguard – IRA withdrawal rules
3. Vanguard – IRA distribution rules
4. University of Michigan HR – Early withdrawal penalty
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How a Jumbo DSCR Lender Sizes the Loan on a Rental · How Much a Late DSCR Loan Payment Costs a Landlord · How Much a Special Assessment Cuts a Non-Warrantable Condo DSCR Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.