The Quick Read: Often yes, but usually not at full face value, and the answer depends on the specific program the file is placed with. Across a wholesale network of DSCR lenders, most programs will look at a vested 401(k) or IRA balance toward reserves, and the credit given can range from a discount to the full vested balance.
- Only the vested balance counts, net of any outstanding 401(k) loan.
- Reserves are measured after the down payment and closing costs are paid.
- Most files run about 6 months of PITIA in reserves, and about 9 months above $1,500,000.
- You generally show the account by statement. You do not liquidate it.
- Some plans lock funds while you are still employed, so proof of access can matter.
Reserves are where a lot of otherwise clean DSCR files stall. The rent covers the payment, the credit is fine, the property is eligible, and then the borrower’s cash sits in a rollover IRA and nobody knows what it is worth to the lender. This piece walks through how that gets decided, where the exceptions sit, and how to decide whether to lean on retirement money at all.
DSCR Calculator
Run the numbers in your market
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 2026
Prefilled with starting assumptions — enter your own rent or nightly figures, taxes, insurance, and HOA for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 15, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Rent, nightly rate, occupancy, taxes, and insurance are editable estimates. Short-term rental figures are estimates only and vary significantly by season, property type, management approach, and local short-term-rental rules — confirm local regulations before relying on them. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
What Reserves Actually Mean on a DSCR File
Reserves are liquid assets that remain after closing, measured in months of PITIA (principal, interest, taxes, insurance, and any HOA dues). The lender wants to see that the payment can still be made if the property sits vacant or rent is interrupted.
Across the network, reserves vary by lender, leverage, loan size, and transaction type. About 6 months of PITIA is common. Conservative rate-term files at modest leverage under $1,500,000 can see reserves waived on some programs. Loans above that size typically step up to about 9 months. None of that is universal, and every file is underwritten individually, subject to lender guidelines.
One timing point trips people up. Reserves are what is left after the down payment and closing costs. A balance used to fund the purchase cannot be counted a second time as reserves.
So Do Retirement Accounts Count?
Usually yes, with conditions. Most programs we place files with accept vested retirement balances as a reserve source. What differs is the credit given.
Treatment tends to fall into three buckets:
1. A discount on the vested balance. The lender credits a percentage and ignores the rest.
2. Full credit of the vested balance. Some programs credit it at 100%, which is more generous than conventional underwriting usually is.
3. No credit at all. A few lenders do not accept retirement accounts for reserves. Ask before you pay for an appraisal.
Why the spread? Each lender or investor sets its own reserve policy. DSCR loans are business-purpose investor loans, so they are reviewed differently from a standard owner-occupied mortgage, and there is no single rulebook that fixes the percentage. Figures you see quoted can run anywhere from roughly half of the vested balance up to the whole thing. Within the network, the answer comes from the program that fits the file, so treat any single number you read online as a starting point and not a promise.
For the broader picture of how these loans are built, see Lendmire’s complete DSCR loans guide.
Why Lenders Discount Retirement Money
The discount is an underwriting convention. It approximates what the money would be worth if you had to pull it out.
Withdrawing from a traditional IRA or 401(k) before age 59½ generally triggers ordinary income tax plus an extra 10% tax. Kiplinger notes that the 10% excise tax hits most early withdrawals on top of regular income tax, and that there is no general hardship exception. Empower describes the same structure and lists the narrow exceptions, such as disability and certain separation-from-service rules.
Those exceptions waive the 10% charge, not the income tax. And a lender’s discount usually does not change based on whether you personally qualify for an exception. The lender is pricing the account type, not your tax situation.
Two other things sit behind the discount: market swings between the statement date and closing, and the friction of selling and transferring assets. That is why brokerage balances often get more generous treatment than retirement balances.
Tax treatment varies; consult a qualified professional before relying on any of this for your own return.
Do You Have to Withdraw the Money?
No, in most cases. Reserves are verified by statement. The lender wants to see the vested balance, not a withdrawal. Cashing out the 401(k) to “prove” reserves would trigger the taxes above and is almost never necessary.
The exception is access. Some employer plans restrict withdrawals while you are still working there. When that applies, a lender may ask for plan documentation showing you can actually reach the funds. If the plan will not release money in service, expect the file to get questions, and expect some programs to decline the balance.
Account Types at a Glance
| Account | Typical treatment | Common friction |
|---|---|---|
| Traditional IRA | Vested balance, often discounted | Statement age |
| 401(k) | Vested balance, loans deducted | In-service access limits |
| Roth IRA | Often treated more favorably | Contributions vs. earnings |
| SEP / 403(b) | Program-dependent | Confirm up front |
| Brokerage | Usually more favorable | Large-deposit sourcing |
The Roth point is worth a sentence. Roth contributions can generally be withdrawn without tax or penalty, while earnings face restrictions, as U.S. Bank’s retirement guidance explains. Some lenders reflect that by treating Roth balances more favorably. Others do not distinguish at all.
What Lowers the Balance Before the Lender Counts It
Four things shrink the number before any discount is applied:
- Unvested money. Non-vested employer contributions and unvested equity do not count.
- Outstanding 401(k) loans. The loan balance is typically deducted from the account.
- Stale statements. An old statement can force a re-pull, and the balance may have moved.
- Account titling. The account generally needs to be in the borrower’s name. Some programs allow the entity, but do not assume it.
One niche note: a few lenders count the amount a borrower could borrow against a 401(k) instead of the account balance. That is rare. Do not plan around it.
A Worked Example
Take an investor buying a rental at 75% LTV on a purchase, with rent clearing roughly 1.2x coverage on the full PITIA. Say the program requires about 6 months of reserves. The investor has a modest checking balance after the down payment and a larger vested 401(k). The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Run it two ways, using modeled assumptions and not any program’s actual credit:
1. Program credits 60% of vested. Checking covers part of the 6 months. The 401(k) at 60% covers the rest, and the file clears.
2. Program declines retirement funds. The same investor is short on reserves, even though the property, the credit, and the coverage ratio are all fine.
Same borrower. Same property. Different program, different outcome. That is the whole point: reserve credit is a placement question. A broker who sees many lenders’ guidelines can route the file to a program that accepts the account, which is a different job than a single lender’s loan officer can do.
Clearing 1.00 on coverage also does not mean the property cash flows. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capex sit outside the ratio, which is exactly why reserves exist.
The Quiet Failure Modes
On these files, the same few things cause most of the reserve friction:
- Counting the same dollars twice. The balance used for the down payment cannot also be reserves.
- Rolling funds mid-file. Moving money between accounts during review creates sourcing questions. Finish the move before applying, or leave it alone.
- A stale or partial statement. Missing pages are a classic preventable gap.
- Ignoring the 401(k) loan. Borrowers quote total account value and forget the loan.
- Assuming the Roth works the same everywhere. It does not.
- Stacked reserves on a portfolio. Some programs require reserves across every financed property. Retirement balances can run out faster than expected when requirements stack.
Cash-out refinance proceeds can sometimes count toward post-close reserves on certain programs, which reduces how much you lean on retirement money. Cash-out ceilings sit around 75% LTV across most of the network on standard rentals, and the common seasoning expectation is about 6 months. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
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.
Should You Use Retirement Funds as Reserves?
Showing the account is cheap. Spending it is not. Using retirement money as a reserve credit costs nothing as long as it stays in the account. The risk is drift: the balance can fall before closing, and a file built entirely on a market-sensitive balance is thinner than it looks.
A simple way to decide:
1. Know the shortfall. Price out the months required against your liquid cash after the down payment.
2. Ask the program how it treats the account. Percentage credited, access proof, statement age.
3. Check for a cushion. If the retirement balance only just covers the gap, a market dip can reopen it.
4. Keep the down payment liquid. Retirement credit mostly helps reserves, not the funds needed to close.
5. Plan the next purchase. Reserves can stack across properties, so what works for one file may not work for the third.
A larger down payment can lower the monthly obligation and lift the coverage ratio, but it does not erase reserve rules, credit floors, or leverage caps. The strongest files clear both tests: enough equity and enough rental coverage.
Key Terms Defined
PITIA: Principal, interest, taxes, insurance, and any HOA dues, the full monthly obligation used in DSCR math.
Reserves: Liquid assets left after closing, counted in months of PITIA.
Vested balance: The part of a retirement account you own outright, excluding unvested employer money.
Haircut: The percentage a lender subtracts from an asset’s balance before crediting it.
Seasoning: How long funds have sat in an account before a lender will count them.
Frequently Asked Questions
Can I use a 401(k) while I am still employed?
Sometimes. It depends on whether the plan lets you reach the funds in service. Lenders may ask for plan documentation proving access, and some programs will not credit the balance if the plan locks it.
Does a Roth IRA count the same as a traditional IRA?
Not always. Roth contributions can generally be withdrawn without tax or penalty, so some programs treat them more favorably. Earnings face restrictions. Confirm the program’s treatment before assuming either way.
What if I have a loan against my 401(k)?
The outstanding loan is typically deducted from the balance before any credit is given. Quote the net vested figure, not the total account value.
Do I have to cash out the account to prove reserves?
Generally no. Reserves are verified by statement, so the account stays where it is. Withdrawing would trigger the income tax and the extra 10% tax on most pre-59½ withdrawals.
Can the same retirement funds cover the down payment and reserves?
No. Reserves are measured after the down payment and closing costs. Dollars spent on the purchase cannot count again, and down payment funds usually need to be liquid or confirmed accessible.
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. Related reading: Lendmire’s piece How to Count Retirement Accounts as Reserves on an Asset Depletion Mortgage covers a different loan type with its own rules. Program details are subject to lender guidelines and are not a commitment to lend.
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.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Kiplinger – Early retirement withdrawals
2. Empower – 401(k) withdrawal rules
3. U.S. Bank – IRA and 401(k) withdrawal rules
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 You Can Borrow for a DSCR Loan on Multifamily 5+ Properties? · Interest-Only DSCR Loan vs. 1099-Only Loan · How to Compare DSCR Loan Quotes From Three Lenders
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.