Liquidity

Liquidity is the ability to meet obligations with cash or with assets that convert to cash quickly. For DSCR loans it shows up as reserves: lenders want proof that the borrower holds a set number of months of the property's payment in accessible accounts after closing.

Reserves are usually counted in months of PITIA. With a payment of about $3,330 on the $500,000 example, six months of reserves is roughly $20,000 on top of the down payment and closing costs. Checking, savings and brokerage accounts typically count; the exact list and the number of months depend on the lender.

Reserves protect the lender against the gap between a strong ratio on paper and a vacant unit in practice. A DSCR of 1.20 leaves little room when a tenant leaves, and cash in the bank is what keeps the loan current until the next lease starts.

Further reading: Liquidity on Wikipedia.