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You are here: Home / Our Tips / Rainy Day Planning: Building Up a 3-Month Mortgage Reserve

Rainy Day Planning: Building Up a 3-Month Mortgage Reserve

September 29, 2021 By Ralph Gates

We’ve probably all heard the idiom about saving for a rainy day, and if we were smart – that’s exactly what we would all be doing! For many of us, saving money is no easy task, but the truth is that it needs to be done by everyone; especially those with a mortgage. Having a 3-month mortgage reserve and a plan that includes a 3-month emergency fund is a smart move for any homeowner from a first-time buyer to those looking for retirement homes.

And while many of us think it will never happen to us (pandemic anyone?), we all know too well that you cannot predict an illness, a layoff, or another catastrophic life event. The key to overcoming these sometimes tragic events is to be prepared with a financial backup plan so that you and your family feel secure no matter what happens.

Here are some tips from the finance gurus at Mid-America Mortgage to help you build a 3-month mortgage reserve so that when life happens, you can still go home.

What is a Mortgage Reserve?

A mortgage reserve is cash (or easy access to cash) that has been designated as funds meant to pay your mortgage payments. Typically, defined to cover a determined number of months, a mortgage reserve is there as a financial backup plan in the event that you are unable to make your mortgage payments for any reason.

To determine just how much you need to have in your 3-month mortgage reserve savings account, simply multiply the amount of your monthly mortgage by three, and you will get the amount needed. For example, if your monthly mortgage payment is $1000, you would need to deposit $3000 into your reserve account to sustain your monthly payment for three months.

Do I Need a 3-Month Mortgage Reserve as a Financial Back-Up Plan?

Finance experts suggest that you start saving money to build a 3-month emergency fund which includes a 3-month mortgage reserve. To purchase a home, you typically don’t need to have a mortgage reserve. Your lender will approve your home loan based on your job, credit rating, and your ability to make the monthly payment.  

If you are a home buyer that has a credit score lower than 660, are self-employed, or are in the market to purchase rental properties, a mortgage reserve may be required in order to approve the home loan. The home loan experts at Mid-America Mortgage can advise you about the best type of loan for your unique situation, the property you want to buy, and whether you will be required to have a mortgage reserve. The attached graphic includes information on how many months of reserve different types of loans will require, as well as details about how many months of reserves may be required depending on the type of property you are purchasing.

Types of Mortgage Reserves to Consider

When it comes to saving money, there are a variety of different types of mortgage reserves to consider. Here are some of the most popular types of savings accounts.

Types of Mortgage Reserve Accounts

  • Checking or savings account
  • Trust
  • Stocks or bonds
  • CDs
  • Cash value of a vested life insurance policy
  • Vested money from an IRA, 401K, or other retirement savings account

3 Ways to Build a Mortgage Reserve

  1. Plan to put aside a fixed amount of money each month from your income
  2. Cut back on frivolous spending and do away with unnecessary expenses and use the extra money to add to your mortgage reserve account
  3. Consider purchasing a certificate of deposit (CD), which is a great investment option to help secure your mortgage reserve

Be Prepared with a Sound Back-Up Financial Plan

Expect the best but prepare for the worst by saving money for a 3-month emergency fund that includes a 3-month mortgage reserve. Not only are reserves a smart idea for any homeowner, but they may also be required by your lender depending on your financial situation. Contact Mid-America Mortgage for more information about starting your 3-month mortgage reserve account today.

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Mid America Mortgage Services, Inc, NMLS #1142067
200 E Walnut St.
Columbia, MO 65203

Phone: (573) 875-1100

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"When we were 18 and 19 years old no one wanted to help us get started. But Michelle took us under her wing 6 years ago next month. There is a lot of people out there that could of taken advantage of us many of times because we had no idea what was going on. For Michelle to stand beside us and walk us through, and not let us get into something that could get us in a lot of trouble means the world. We thank Michelle and we are extremely blessed to be able to work with her and her team. I have never even thought about talking to another lender and will always be loyal to Mid America Mortgage Services, Inc."

Cody and Morgan

"I’m a very loyal customer at Mid America Mortgage Services, Inc. I have an addiction to building houses and designing them, and they are always right there with me every step of the way helping me get the best loan product and the best rates whenever I am ready to build. They make sure you don’t get a loan that you can’t afford. The whole process was very smooth. I would recommend Mid America Mortgage Services, Inc to anyone because they are always there to teach you, help you, and make it easy for you every step of the way."

Kate

"I have had mortgages since 2004 in Columbia and have gone through a couple of banks, but over the last several years, the last couple of houses have been with Mid America Mortgage Services, Inc. Michelle has told us many times, 'I am not going to put you in a situation I am not comfortable with you being in, regardless of what it means for our company'.

Heidi always has a smile on her face and when you walk through the door, they recognize you and say “Hi”. I definitely recommend anyone who is in the home buying, purchasing, refinancing, upgrading business to go to Mid America Mortgage Services, Inc, ask for Michelle because they are going to be the best person you can work with."

John

Selling our home of 17 years and building a new home was a very emotional time for our family. We were ready for the next adventure in our lives but knew there were numerous steps involved. The search for a mortgage officer was simple, Michelle was our choice. Her guidance and knowledge made the process as easy as possible. When we had questions, she was always there to give us an answer and discuss our options. The employees of Mid America Mortgage Services, Inc like Michelle will keep us returning for our mortgage needs.

Chad and Julee

"One of the main things that I loved about Michelle was she was so organized. She would meet us at any location she needed to, and to be honest she had the absolute lowest interest rate. They were always very transparent with fees so there were no surprises. Michelle was always super easy and we would always run in talk to her even it was for a few minutes. The best thing was the process was very, very smooth."

Chris and Jamie


Phone: (573) 875-1100
200 E Walnut St, Columbia, MO 65203

 

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