The Quick Read: Reserves are liquid funds that stay in your account after closing, counted in months of the full monthly obligation (principal, interest, taxes, insurance, and association dues). On most files across the wholesale network they run about 6 months, stepping up for larger loans. The lender sets the number, not a regulator, and each file is underwritten individually.
- Reserves are measured on the new, larger payment after cash-out, not the old one.
- Short-term-rental cash-out refinances typically top out around 70% LTV, versus about 75% on a standard rental.
- Whether cash-out proceeds count toward reserves is decided program by program. Plan on them not counting unless the lender confirms.
- Reserves commonly step up to about 9 months on loans above $1,500,000, and some conservative rate-and-term files see them waived.
- Clearing 1.00 coverage is not the same as positive cash flow. Reserves are the buffer for what the ratio ignores.
Reserves are the line that surprises borrowers on a cash-out. The equity math works, the coverage ratio clears, and then the file stalls because the cash that was supposed to sit behind the loan went into the next purchase. This piece walks through how the reserve test is built, how it is documented, and where it breaks.
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What Is a Reserve on an STR Cash-Out Refinance?
A reserve is a post-closing liquidity check. It is separate from the down payment on a purchase and separate from closing costs. The lender wants to see that after the loan funds and the payoff is made, you still hold money equal to a set number of monthly payments.
DSCR loans qualify primarily on property-level rental income covering the payment, subject to lender guidelines. Personal income is not the test. Reserves take its place as the cushion against vacancy or a surprise repair. Scotsman Guide notes that terms on these loans vary by lender and lists six months of reserves held in a federally insured U.S. bank as a commonly seen feature. That page is a few years old, so treat it as confirmation of the concept, not a current rulebook.
Across the wholesale network, reserves commonly land around 6 months of payment. The count moves with leverage, loan size, and transaction type.
Three Things Called “Reserves”
The word covers three different ideas, and mixing them causes bad planning.
| Meaning | Who sets it | What it is |
|---|---|---|
| Lender reserves | The lender | Liquid funds held after closing |
| Operating and capital reserves | You | Your own buffer for repairs and slow months |
| Escrow or impounds | Servicer | Money collected monthly for taxes and insurance |
Only the first one is a loan condition. The second is good practice. The third is a servicing mechanism. Money counted as lender reserves cannot also be your repair fund on paper, so plan for both without double-counting.
How Underwriting Treats Reserves, Step by Step
The reserve test follows the income test. Here is the sequence on a typical file.
1. Income is established. For a short-term rental this is usually platform history from Airbnb or Vrbo statements, a third-party projection, or the long-term market rent from the appraiser’s Form 1007 rent schedule. Expect about 12 months of hosting history on most STR programs.
2. The new loan is sized. STR cash-out typically tops out around 70% LTV. That lower ceiling means a smaller loan than the same property would carry as a standard rental at about 75%.
3. Reserves are measured on the new payment. The monthly obligation after the refinance is larger than the old one. Required months multiply against that new figure.
4. The required months are chosen. The number depends on leverage, loan size, transaction type, coverage strength, and credit. Most files sit near 6 months. Above $1,500,000 it typically steps up to about 9 months. A conservative rate-and-term file at modest leverage under $1,500,000 can see reserves waived. These requirements vary by lender.
5. Assets are documented. Recent statements show the funds. They are usually expected to be seasoned and held in your name or the LLC’s name, subject to program eligibility.
6. The whole file is reviewed. Reserves are checked alongside the appraisal, six months of seasoning on the existing loan, title and entity documents, and the STR income documents.
For the wider program picture, Lendmire’s complete DSCR loans guide covers how the pieces fit.
How the Income Method Changes the File
Reserves are judged inside a stricter file. STR income swings more than a lease, so lenders watch the whole package.
In one reviewed loan pool, loan-review notes in an SEC ABS-15G exhibit describe a program where the lowest of several income sources governs, and where the 1007 market rent alone was enough on a refinance. Another set of filed review notes shows a loan that qualified on the 1007 market rent instead of STR income. Those are program-specific outcomes, not network rules.
A loan using STR income without full documentation was approved as an exception on strong reserves, a high coverage ratio, and investor experience. Reserves can help a file. They do not replace the income test.
Not every DSCR lender takes STRs at all. Some require long-term-rent qualification, and some require 12 full months of history. The reserve rule you meet depends on which type of lender you land with. Across the network, a few lenders are more flexible on projections and seasonal markets, while the strictest overlays want full history.
Do Cash-Out Proceeds Count Toward Reserves?
Sometimes. This is the most common surprise on a cash-out, and no single rule governs it. Some programs let net proceeds count. Many do not. Plan on proceeds not counting unless the lender confirms in writing.
| Treatment | What it means for your file |
|---|---|
| Proceeds count | You can fund reserves from the cash you pull |
| Proceeds excluded | You need separate liquid funds after closing |
| Partial credit | Program-specific; ask before you order the appraisal |
The practical effect is simple. If proceeds do not count, every dollar you plan to pull out for the next deal is a dollar you cannot also use as reserves. A borrower who spends the cash first and documents reserves second is the one who gets kicked back.
1031 exchange proceeds are typically walled off from reserve use as well.
What Counts as a Reserve Asset?
Liquid and documented. Cash in a bank counts at full value. Brokerage accounts generally count. Retirement accounts count on the vested balance only, and many programs discount them. Some count them at 100%. Confirm per program, and use the discounted figure, not the statement total.
Generally not counted: unseasoned gifted funds, unsecured credit lines, and assets that cannot be turned into cash readily. Home equity is not a liquid reserve. It is the thing you are borrowing against.
Large unexplained deposits are the usual snag. Expect to explain any deposit that does not match your normal pattern, and keep the paper trail clean before the statements go in.
Why STRs Draw More Reserve Scrutiny
Four reasons, all about risk:
- Income varies by season and by booking platform.
- Leverage ceilings are lower, around 70% on cash-out for short-term rentals.
- Hosting history or projection documents are required.
- Local rules can change. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income.
STR files typically expect a 640+ credit score and about 12 months of host experience, with a 1.00 coverage floor on refinances. That 1.00 is where select programs start. A separate select-lender path takes coverage below 1.00 with leverage and terms adjusted.
Where the General Rule Breaks
Named edge cases, because the 6-month figure is a starting point:
- Interest-only loans. Some programs size reserves on the actual interest-only payment. Others use the fully amortizing payment as a conservative standard. Interest-only periods are available through select lenders in the network, so ask which basis applies.
- Larger loans. Reserve months step up above about $1,500,000. Standard programs run up to $3,000,000, and above $2,500,000 the network generally holds to 30-year fixed structures.
- Other financed properties. Some programs layer extra reserves for each other financed rental you own. Others pool them. The treatment differs, so disclose the portfolio early.
- Retirement accounts. The haircut varies widely between programs.
- Waived reserves. Possible on conservative rate-and-term files at modest leverage, not usually on an STR cash-out.
- Agency contrast. Conventional agency rules accept vested retirement funds without a withdrawal. DSCR programs set their own haircuts, so agency treatment does not carry over.
What the Decision Looks Like in Practice
Consider an investor with a short-term rental at roughly 55% of current value owed, strong platform history, and a credit score in the 700s. Cash-out at 70% LTV leaves real room. The investor plans to pull cash and buy the next property. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Here is the catch. If proceeds do not count, the investor needs about 6 months of the new payment sitting in a separate account after closing. If the loan lands above $1,500,000, that moves toward 9 months. A smaller cash-out means a smaller loan and a smaller reserve requirement, so the sizing decision and the reserve decision are the same decision. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
A smaller cash-out lowers the loan and the payment and can lift coverage, but it never erases leverage caps, credit floors, reserve rules, or property eligibility. The strongest files clear both tests: enough equity and enough rental coverage.
Also keep the coverage ratio in perspective. DSCR compares rent to the full monthly obligation only. A property can clear 1.00 and still lose money after repairs, vacancy, management, utilities, and capital spending. Reserves are what absorbs that gap. That is why it makes sense to hold more than the minimum even when the lender asks for less.
Documentation that keeps a file clean:
- Two most recent statements for every reserve account.
- Platform statements covering the full hosting history.
- Entity documents if the loan closes in an LLC, subject to lender program eligibility.
- A written confirmation of whether proceeds count, requested before the appraisal.
If you are short, the usual options are a smaller cash-out, moving more assets into documented accounts, or a different program in the network. Each has a tradeoff in leverage or terms.
Not offered in the network: manufactured homes, log homes, and barndominiums. Reserves cannot fix an ineligible property.
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.
Key Terms Defined
Reserves: Liquid funds you still hold after closing, counted in months of the monthly payment.
PITIA: Principal, interest, taxes, insurance, and association dues, the full monthly obligation used in the coverage ratio.
Seasoning: The minimum time you must have owned the property, or held the funds, before they count.
Form 1007: The appraiser’s rent schedule that estimates long-term market rent.
Liquid assets: Money that can be turned into cash without delay, such as bank balances.
Frequently Asked Questions
How many months of reserves does a short-term rental cash-out refinance need?
Commonly about 6 months of the full monthly obligation across the wholesale network. It typically steps up to about 9 months above $1,500,000.
Can I use my cash-out proceeds as reserves?
It depends on the program. Some allow it and many do not. Plan on proceeds not counting unless the lender confirms, and keep separate liquid funds if you intend to spend the cash on another deal.
Does a 401(k) count as reserves?
Usually on the vested balance only, and often at a discount. Haircuts vary widely between programs, so use the discounted figure when planning, not the statement total.
Are reserves paid to the lender?
No. They stay in your account as verified liquidity. The lender checks the balance at underwriting and does not collect it.
Why are STR reserves treated differently from long-term rental reserves?
Short-term income swings more and leverage ceilings are lower, so the lender reviews the whole file more closely. STR cash-out typically tops out near 70% LTV, versus about 75% on a standard rental, and the file expects about 12 months of hosting history.
For the mechanics of pulling equity out of a rental property, see Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage focused on investor financing, arranging DSCR loans in 40 states plus Washington, D.C. — 41 markets total. Qualification is based on the property’s income rather than personal income documentation, subject to lender guidelines, making it a fit for LLC-held rentals and scaling portfolios. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Scotsman Guide, “Invest in Your Future”
2. SEC EDGAR ABS-15G, Santander exhibit
3. SEC EDGAR ABS-15G, GAHL exhibit
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Lenders Underwrite a Short-Term Rental Cash-Out Refinance With Six Months Reserves
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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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.