The Quick Read: Reserves are the liquid assets an investor still holds after a cash-out refinance closes, usually measured in months of PITIA, and whether the cash-out proceeds can count toward them depends on the program and the loan size. Across most programs in Lendmire’s wholesale network, the working assumption is that proceeds do not count until a lender confirms otherwise in writing.
- Reserves commonly run around 6 months of PITIA, stepping up to about 9 months above $1,500,000, subject to lender guidelines.
- Cash-out refinances top out near 75% LTV on standard rentals, with about 6 months of seasoning.
- Some programs let net proceeds count, sometimes with a cap or documentation conditions. At the largest tiers, reserves generally must already exist and be sourced separately.
- Equity on paper is not cash in hand: payoff, costs, and reserves come out first.
An investor can have 40% equity in a rental and still walk away from the closing table with far less cash than expected. Reserves are usually the reason. This piece covers how the test works, where programs differ, and how to plan around the gap. For the full picture of how these loans fit together, see the complete DSCR loans guide.
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Key Terms Defined
PITIA: The monthly total of principal, interest, taxes, insurance, and association dues on the new loan.
Reserves: Liquid assets the borrower still holds after closing, counted as months of PITIA.
Net proceeds: The cash left from a cash-out loan after the old loan payoff, closing costs, prepaids, and any prepayment penalty.
Guarantor: The person who signs personally behind an LLC borrower; reserves are tested on this person’s verified assets.
Seasoning: How long the borrower has owned the property, measured from title recording, before a cash-out is allowed.
Haircut: The discount a lender applies to less-liquid assets, such as retirement or brokerage accounts, when counting reserves.
Who Sets the Reserve Rule?
No government rule sets DSCR reserves. These are business-purpose investor loans, reviewed differently from a standard owner-occupied mortgage. Each investor lender writes its own matrix, and the reserve count flexes with leverage, coverage ratio, credit, loan size, property type, and transaction type.
That is why you see conflicting answers online. Agency lending is a useful contrast. The Fannie Mae Selling Guide also measures reserves in months of PITIA, but its rules bind only loans sold to that agency. Its archived guidance lists cash proceeds from a cash-out refinance on the subject property as an unacceptable reserve source. That is the likely source of the common belief that proceeds never count.
DSCR programs set their own treatment. Across the network, it varies. Some count net proceeds, some cap the amount, and some require documentation. At the largest tiers, reserves generally must exist already and be sourced separately. The myth runs both ways: proceeds do not always count, and they do not never count.
How Underwriting Treats the Refinance, Step by Step
1. Coverage test. Underwriting divides monthly rent by the new PITIA on the larger loan. Commercial sources define DSCR as net operating income over debt service. Residential DSCR files use gross rent used for lender review over PITIA. Where 1.00 is the floor on select programs, stronger ratios open better pricing and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.
2. Loan sizing. The new loan is the lower of two limits: the LTV cap on appraised value (around 75% on a cash-out) and the largest loan the rent can carry.
3. Cash calculation. From that maximum loan, subtract the payoff (balance, accrued interest, any prepayment charge), then closing costs and prepaids. What is left is net proceeds.
4. Reserve test. Liquid assets remaining after closing, divided by PITIA, give months of reserves. The file then asks two questions. Does this program allow net proceeds to count? Is the count capped?
5. Documentation. Expect bank statements, typically two months, though programs specify their own. Large deposits need sourcing. Retirement and brokerage balances often count at a discount. The borrower signs a business-purpose declaration, and proceeds are expected to go to business use.
6. Stacking. Reserve requirements apply file by file. Lenders generally will not count the same dollars twice across simultaneous cash-outs.
Two Investors, Same Loan, Different Treatment
The two investors below are illustrative and fictional. Both own a rental with the same appraised value, the same payoff, and the same new loan at 75% LTV on a cash-out. Both hold modest savings outside the property. Assume the program asks for about 6 months of PITIA. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
| Factor | Program A: proceeds count | Program B: proceeds don’t count |
|---|---|---|
| Reserve source | Net proceeds plus savings | Existing savings only |
| Outside liquidity needed | Lower | Full 6 months |
| Cash available to redeploy | Reduced by the reserve held | Full net proceeds |
| Main risk | Cap or documentation limits | Savings fall short |
Investor A’s file clears because the cash from the refinance fills the reserve bucket. The catch is that those dollars are now locked in as reserves. Investor B needs the full reserve in the bank before closing, but every dollar of net proceeds is free to use. Same loan, different liquidity plan.
Now the trap. Say Investor A earmarks the proceeds for the down payment on the next rental. The same dollars cannot be both a reserve and a down payment. Money spent on a purchase or rehab is gone from the reserve count. Skip that mistake and the file stays clean.
Where the General Rule Breaks
Loan size. Reserves step up on larger loans, to about 9 months above $1,500,000 in the network’s commonly seen structure, and proceeds are generally not allowed to count at the top tiers. Above $2,500,000, the network generally holds to 30-year fixed structures as well.
LLC borrowers. Reserves are tested on the guarantor’s verified assets, not on the LLC’s account alone. For an LLC-held rental, this is typically the first question to settle, depending on program guidelines.
Short-term rentals. Cash-out on STR collateral tops out around 70% LTV, versus about 75% on standard rentals, and reserves are sometimes higher. Expect a 640+ score and about 12 months of hosting history. Lendmire’s piece STR Cash-Out Refinance Reserves: Six Months and When the Proceeds Count covers that lane in detail. 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. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Thin coverage. A weaker ratio can trigger lower leverage or more reserves. Credit works the same way: a 620 floor exists in parts of the network, most programs want around 660, and 700+ unlocks the strongest leverage tiers.
Prepayment penalties. A penalty on the old loan comes straight out of net proceeds. An investor who counted on the full equity figure can find the check noticeably smaller.
Ineligible property types. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered in these DSCR programs, so no reserve plan applies to them.
Agency contrast. For perspective only, agency guidance asks for 6 months of reserves on an investment property, more when the borrower has several financed properties, and its eligibility matrix caps investment-property cash-out at 75% LTV. Those are agency rules. They do not govern DSCR files. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
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.
What Seasoned Brokers See on These Files
In deal flow like this, the reserve line decides more cash-out files than the coverage ratio does. A property can clear the rent test comfortably and still stall because the borrower’s liquid assets sit in a retirement account that counts at a discount, or because a large deposit has no paper trail. The files that move cleanly are the ones where the investor asked the proceeds question in writing before ordering the appraisal, not after.
Planning Around the Gap
If the program counts proceeds, treat that as a bonus. If it does not, you are already covered.
A few habits help:
- Sequence cash-outs one at a time. This avoids double-counting liquidity and spreads prepayment costs.
- Subtract before you celebrate. Estimate payoff, costs, penalty, and reserves before treating any equity figure as spendable.
- Keep reserve dollars separate from deal dollars. Label them in your own books.
- Ask early. Is there a proceeds cap? Does the count change by loan size? Are retirement assets discounted?
This matters most for BRRRR operators and portfolio scalers recycling equity from one deal into the next. Lendmire’s piece How Reserves Are Counted on a BRRRR Cash-Out Refinance After Hard Money walks through that sequence.
Two cautions. Clearing 1.00 coverage is not the same as positive cash flow. DSCR compares rent to PITIA only, so repairs, vacancy, management, utilities, and capex sit outside the calculation. And a larger down payment on a purchase can lift coverage, but it never erases leverage caps, credit floors, reserve rules, or property eligibility. Strong files clear both tests: enough equity and enough rental coverage. Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Frequently Asked Questions
Can I use my cash-out check as my reserves?
Sometimes. Some programs let net proceeds count, occasionally with a cap or documentation conditions, while others require reserves to already exist outside the transaction. Until a lender confirms in writing, assume the proceeds do not count, subject to lender guidelines.
How many months of reserves do DSCR cash-out refinances usually need?
Commonly about 6 months of PITIA, stepping up to about 9 months on loans above $1,500,000. Exact counts vary by lender, leverage, loan size, and transaction type. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived.
Are reserves tested on my LLC or on me?
On the guarantor. The lender verifies the personal liquid assets of the person signing behind the entity. An LLC account may help in some programs, depending on program guidelines.
Do retirement accounts count toward reserves?
Often, but at a discount. Retirement and brokerage balances typically count for less than their face value, and the discount varies by program. Plain cash in a bank account is the cleanest source.
What if I need the proceeds for my next purchase?
Then plan reserves from other funds. Dollars used for a down payment or rehab cannot also remain as reserves. Running the next acquisition after the first refinance settles, rather than at the same time, keeps the liquidity picture clean.
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. Lendmire is a broker arranging financing through select lenders in its wholesale network, and nothing here is a commitment to lend.
Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage built around DSCR investor lending, with programs available in 41 markets, including Washington, D.C. DSCR lenders commonly evaluate rental-income coverage instead of personal income paperwork — a practical fit for LLC-owned and multi-property investors. Terms vary by lender, property, leverage, and program. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide: Minimum Reserve Requirements
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: DSCR Cash-Out Documentation When a Lease Expires During Refinance · How to Clear a Solar Lien on Your First Rental Before a DSCR Cash-Out · How to Keep a Standing HELOC on a Rental to Fund the Next Deal
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.