How reserves for a rental property loan are counted

Search for reserves for a rental property loan and half of what comes back is about landlord reserves: money you set aside for repairs, vacancy and capital expenses. That is good practice, but it is not what a lender is asking about.

Lender reserves are a qualifying test. The question is whether, after you have paid the down payment and closing costs, you would still have enough liquid assets to cover the payment for a period if the rent stopped.

The same section lists acceptable sources: checking and savings, stocks, bonds, mutual funds, certificates of deposit, money market and trust accounts, the vested amount in a retirement account, and the cash value of a vested life insurance policy.

It also lists what cannot count: funds that are not vested, retirement money that can only be withdrawn on retirement, termination or death, stock in an unlisted company, unvested stock options and restricted stock, personal unsecured loans, contributions from interested parties to the sale, lender contributions, and cash from a cash-out refinance of the property itself. Eligible gift funds can count; a gift of equity cannot.

Recent statements for every account you expect to count, with retirement statements showing the vested balance, and a note of where the down payment and closing costs will come from. With those, the reserve position can be checked before you are under contract rather than discovered at the end.

Agency loans are consumer mortgages and I originate them in select states. A rental loan qualified on the property rent is business purpose, available in any state. Eligibility and terms vary by scenario and by lender guidelines; nothing here is a commitment to lend.