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Sam · Posted: Sun Apr 04, 2004 11:01 pm Post subject: Replacement Reserve

Mortgage lenders make payments on taxes and insurance from the borrower's monthly deposits in an escrow account. There is also a provision for a Replacement Reserve which provides funds for replacement of common property (roofing, heating unit, etc). The property may belong to a condominium, cooperative or a planned unit development. The replacement work includes carpeting, furniture, etc.

Borrowers taking mortgage loans from FHA approved lenders are required to maintain replacement reserve in their escrow accounts. The reserve escrow is calculated on the basis of the estimated useful life of the items. An initial deposit is also required for the replacement reserve. The FHA demands an ongoing deposit so that a balance equal to at least $150 per unit, per annum, can be maintained throughout the loan term.

Only certain improvements are eligible for utilizing the funds from the replacement reserve escrow account. Items considered as routine maintenance, normal operational expenses are not included under the replacement work for which the reserve provides funds.

You can use a similar form given here for requesting funds from the Replacement Reserve.

Guest

The Loan is paid off and we got our money back from Replacement Reserve Funds. This is my first time to record an entry to our GL. I know is debit cash and credit Replacement reserve. Our GL is higher by $1000 than the check. How do I record the remaining,....other income?

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