Reserves (Cash Reserves)

Reserves are liquid funds a lender requires you to hold after closing — money left in the bank once the deal is done — as a cushion to keep paying the loan if income dips or surprises hit. Reserves are usually measured in months of the property's PITIA (its full monthly payment), and they're a standard requirement on DSCR and most investor loans.

How reserves are measured

If a property's PITIA is $2,000/month and the lender requires 6 months of reserves, you must show $12,000 in available funds after paying your down payment and closing costs:

Reserves Required = Monthly PITIA × Months Required
                  = 2,000 × 6 = $12,000

Typical requirements run 2–12 months depending on the lender, loan type, DSCR, and number of properties financed. Lower-DSCR deals and larger portfolios often require more.

What counts as reserves

Lenders accept liquid or near-liquid assets:

• Checking/savings balances
• Money-market and brokerage accounts (often counted at a percentage)
• Sometimes a portion of retirement accounts

The funds usually must be seasoned — sitting in the account for 60–90 days — so a last-minute deposit may trigger a source-of-funds question.

Why lenders require reserves

Reserves are the lender's assurance you can weather trouble without defaulting:

• A vacancy between tenants — you cover PITIA until re-leased.
• A surprise expense — major repair, special assessment.
• A rate or tax increase that lifts the payment.

Because DSCR loans qualify on the property rather than your income, reserves are an especially important backstop — they're how the lender knows you have staying power if the rent stops.

Reserves and your true cash needed

Reserves matter to investors because they're part of the real cash a deal ties up, even though they're not 'spent':

Cash Needed = Down Payment + Closing Costs + Reserves

Forgetting reserves is a classic reason an investor qualifies on paper but can't actually close. And while reserves stay yours (unlike a down payment), they're locked as a cushion, which affects how many deals you can do at once.

Reserves vs. interest reserve

Don't confuse cash reserves with an interest reserve. Reserves are your funds the lender requires you to retain. An interest reserve is part of the loan that pre-funds interest payments on a rehab/bridge deal. Different concepts, similar-sounding names.

Practical takeaway

Plan for reserves from the start. When you size a deal, add the lender's reserve requirement to your down payment and closing costs to know the true cash to close and hold. Keep reserves seasoned and documented, and recognize that as you scale a portfolio, cumulative reserve requirements across properties tie up real capital — a key constraint on how fast you can grow. Healthy reserves don't just satisfy the lender; they're genuinely what keep a rental from becoming a problem during the inevitable vacancy or surprise.