The Quick Read: Usually yes, as long as the balance is vested, owned by the borrower, and reachable under the plan’s rules, though most programs count it at a discount rather than at full statement value. Reserves on a DSCR refinance are post-closing liquid assets measured in months of PITIA, and no federal rule sets them, so the lender program decides what counts and how much.
- Most programs in a wholesale network accept vested 401(k) and IRA balances toward reserves, usually with a haircut.
- Nothing has to be withdrawn. A recent statement showing the vested balance is the typical proof.
- Reserves are commonly around 6 months of PITIA, stepping up to about 9 months on loans above $1,500,000.
- Cash-out refinances tend to be the highest-reserve scenario; conservative rate-and-term files can see reserves waived.
- Money used to close does not count as reserves, because reserves are what remains afterward.
What Do Reserves Mean on a DSCR Refinance?
Reserves are documented liquid assets you still hold after the loan closes, expressed as months of PITIA: principal, interest, taxes, insurance, and association dues. They are separate from funds needed to close. A DSCR loan qualifies primarily on property-level rental income covering the payment, subject to lender guidelines, but the lender still wants proof you can carry the property through a vacancy or repair.
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Across the wholesale network Lendmire works with, reserves vary by lender, leverage, loan size, and transaction type. About 6 months of PITIA is the common figure. Conservative rate-and-term files at modest leverage under $1,500,000 can see reserves waived. Larger loans typically step up to about 9 months. The point is that no single number is universal, and the program in front of you sets the test.
How Do Lenders Treat a 401(k) or IRA as Reserves?
Most programs apply three tests: ownership, vesting, and access. The account must be in the borrower’s name, the balance must be vested, and the plan must let the borrower reach the money.
Then comes the discount, which exists because of tax friction. The IRS says early distributions from traditional and Roth IRAs, generally those taken before age 59½, carry a 10% additional tax on top of regular income tax, and the same additional tax generally applies to 401(k)-type plans. A lender counting a retirement balance at full value would be crediting money that would shrink if the borrower ever had to use it. So the haircut is the lender’s way of pricing that friction. The borrower is not required to actually withdraw anything.
How big is the haircut? It differs by program. Some lenders count the vested balance generously, and others take a deeper discount, especially for borrowers under 59½. Treat any single percentage you read online as one program’s rule, not a standard. The complete DSCR loans guide explains how reserve requirements fit with leverage and credit across programs. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
| Account type | What the lender looks at | Common sticking point |
|---|---|---|
| 401(k) | Vested balance, plan access | Locked while still employed |
| Traditional IRA | Ownership, balance | Discount for age under 59½ |
| Roth IRA | Balance, program rules | Treatment is program-dependent |
| 403(b) / SEP | Vesting and access terms | Plan documents may be requested |
| 401(k) loan | Balance net of the loan | Outstanding loan reduces the count |
Do I Have to Withdraw the Money?
No. A reserves test is a request for evidence, not a liquidation. The lender wants a statement showing the vested balance, your ownership, and, on some programs, the plan’s withdrawal terms.
Plan before you apply, though. If you cash out or move retirement funds first, you may trigger income tax and the possible 10% additional tax the IRS describes. You may also create sourcing questions and shrink the amount that counts. Pledging an IRA as security for a loan is treated as a distribution under IRS Publication 590-B, so that is not a workaround. Tax treatment varies; consult a qualified professional before relying on any deduction or strategy.
What Changes on a Refinance Versus a Purchase?
Refinance files shift the math in two ways.
Rate-and-term refinances. These are the lowest-reserve scenario. Conservative files at modest leverage under $1,500,000 can see reserves waived on some programs. Network programs allow refinance leverage up to 85% on an investment property, subject to lender guidelines.
Cash-out refinances. These tend to carry the heaviest reserve expectation. Cash-out leverage tops out around 75% LTV across most of the network, and about 6 months of seasoning is the common expectation. Whether proceeds themselves count toward reserves depends on the program. Lendmire’s piece Can Cash-Out Refinance Proceeds Count as Reserves on a Second Home? covers that question in depth.
Funds to close come out first. On a refinance, that means any payoff shortfall, costs, or prepaids. Only what remains after closing is measured against the months-of-PITIA requirement.
A Worked Example: Short Versus Passing
Say an investor refinances a rental with a 6-month reserve requirement and holds three buckets: a checking account, a brokerage account, and a vested 401(k). Run it in two versions, using modeled assumptions rather than real figures. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Short version. After funds to close come out, the liquid cash and brokerage cover about 3 months of PITIA. The 401(k) statement shows a vested balance, but the program counts it at a meaningful discount. After the haircut, the combined total lands near 5 months. The file is short by about a month.
Passing version. Same borrower, but the 401(k) has no outstanding plan loan and the plan allows in-service access, documented in a statement. The program counts the balance more generously, and the combined total clears 6 months.
The takeaway: the same borrower can land on either side depending on the program’s discount, the plan’s access rules, and how much cash goes to closing. Because the haircut varies, a borrower needing a given number of months may need a larger retirement balance than the requirement alone suggests.
One more practical point. DSCR compares rent to PITIA only. Clearing 1.00 coverage does not mean positive cash flow, since repairs, vacancy, management, and capex sit outside the calculation. Reserves exist partly to cover that gap. Also, a larger down payment can lift coverage, but it never erases reserve rules, credit floors, or leverage caps.
What Does Not Count as Reserves?
- Unvested employer stock or balances. Only the vested portion counts, net of any plan loan.
- Funds locked until retirement, termination, or death. If you cannot document access, the balance may not count at all.
- Borrowed money. Lines of credit are borrowed funds, not assets.
- Undocumented deposits. Large recent transfers without a paper trail invite sourcing questions.
- Crypto. Often excluded or treated cautiously, depending on the program.
- Dollars already used for income. Asset-utilization programs are a different product, and the same dollars cannot serve as both qualifying income and reserves.
What Documents Will the Lender Want?
Expect two months of statements for liquid accounts. For retirement accounts, the vested-balance statement is the usual proof. Some programs also ask for the plan’s withdrawal terms, especially if you are still employed with the plan sponsor. If the plan issues only quarterly statements, send the most recent one and ask the lender what else they need.
Multiple Properties, Spouses, and Joint Accounts
Reserves can stack when you own several financed rentals, so a pool that clears one loan may not clear the next. Ask the lender early rather than assuming. Retirement balances can also appear in a different context, and Lendmire’s article How Retirement Assets Count as Income on a Divorce Cash-Out Refinance covers that angle.
If You Are Short on Reserves
The fixes are usually practical:
1. Mix asset types, counting cash first and filling the gap with brokerage and retirement.
2. Lower the loan amount or leverage, which can reduce the requirement.
3. Move to a rate-and-term structure, where reserves can be lighter or waived.
4. Pick a program that treats retirement balances more generously.
5. Wait and build liquid cash, if the timing allows.
No version of this guarantees approval. Eligibility depends on lender guidelines, credit profile, reserves, and property review.
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.
Key Terms Defined
Reserves: Documented liquid assets held after closing, measured in months of PITIA.
PITIA: Principal, interest, taxes, insurance, and association dues, the full monthly housing obligation.
Haircut: The discount a lender applies to an asset, so only part of its statement value counts.
Vested balance: The portion of a retirement account you own outright, net of any plan loan.
Funds to close: Money needed at closing, which comes out before reserves are measured.
Frequently Asked Questions
Does a Roth IRA count the same as a traditional IRA?
Not always. Treatment is program-dependent, and some lenders handle Roth balances differently. Ask which tests apply to your account, and bring a current statement showing the balance and ownership.
Does a 401(k) count if I’m still employed?
It can, if the plan lets you reach the money while employed and you can document it. Some plans lock funds until separation, and a balance you cannot access may not count at all.
Does a 401(k) loan help?
It generally hurts. Any outstanding plan loan is deducted from the vested balance, so the counted amount falls. It also does not add liquidity the lender will credit.
Can the same retirement money be used for income and reserves?
No. Dollars used under an asset-utilization approach cannot also be counted as reserves. A standard DSCR file qualifies primarily on the property’s rental income covering the payment, subject to lender guidelines, so retirement money usually only matters for reserves.
What if my reserves fall short?
Try combining asset types, reducing the loan amount, or choosing a rate-and-term structure where reserves can be lighter. Programs differ, so a different lender in the network may count the same account more favorably.
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. Reach the team at 828-256-2183. Programs change, and every file is underwritten individually. This is not a commitment to lend.
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. IRS Publication 590-B, Distributions from Individual Retirement Arrangements
2. IRS Topic No. 557, Additional Tax on Early Distributions from Traditional and Roth IRAs
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much Cash a DSCR Refinance Releases When You Keep the First Lien · No-Ratio DSCR Loan vs Delayed Financing: Which Fits? · How to Qualify a Suburban Florida Airbnb on a DSCR Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.