On the 203(k) Rehabilitation Mortgage Insurance Program a Mortgage Payment Reserve refers to an amount set aside to make mortgage payments when the property cannot be occupied during rehabilitation.
A mortgagee may establish a financeable Mortgage Payment Reserve, not to exceed six months of mortgage payments. The Mortgage Payment Reserve may include mortgage payments only for the period during which the property cannot be occupied. The number of mortgage payments cannot exceed the completion time frame required in the Rehabilitation Loan Agreement.
For multi-unit properties, if one or more units are occupied, the Mortgage Payment Reserve may only include the portion of the mortgage payment attributable to the units that cannot be occupied. To calculate the amount that can be included in the Mortgage Payment Reserve, the mortgagee will divide the monthly mortgage payment by the number of units in the property, and multiply that figure by the number of units that cannot be occupied. The resulting figure is the amount of the mortgage payment that will be paid through the Mortgage Payment Reserve. The borrower is responsible for paying the servicing mortgagee the portion of the mortgage not covered by the Mortgage Payment Reserve.
Mortgage Payment Reserves may not be financed under the Limited 203(k).
For additional information see Handbook 4000.1 II.A.8.a.vi(F) and II.A.8.a.vii(G) at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh