Building an Emergency Fund for Natural Disaster-prone Homes

Hurricane Dorian is just another reminder that every homeowner needs a financial plan for the aftermath of a storm that damages or destroys your property. 

Hurricane Harvey and Hurricane Irma caused more than 160,000 combined mortgage delinquencies, while past-due payments on home equity loans and HELOCs spiked in areas impacted by the storms. In Puerto Rico, more than 140,000 homeowners fell behind on their mortgage payments after Hurricane Maria.

No homeowner should have to think about their mortgage payment when their home is uninhabitable. But missed payments can have a significant impact on your credit score and financial standing, at best. At worst, you could lose your property.

The best way to avoid a financial faux pas after a hurricane, flood, fire, or other natural disaster is to put plan in place before the storm strikes that allows you to stash away funds and hope you never need them. 

Financial Relief Programs

There are special programs for homeowners affected by hurricanes, tornados, fires, and floods that are designed to ease your financial burden immediately following a storm, such as:

1. -Mortgage payment holds that allow you to pause or defer your payments.
2. -Special financing for repairs, whether through Small Business Administration loans, -FEMA grants, or other aid.
3. -Foreclosure freezes, which put a pause on any lender’s effort to seize your home due to lack of payment.

The downside?  if you’re able to defer your mortgage payments, your lender may insist those deferred payments be paid back in full after just a few months.

It could also take months for those checks to arrive, forcing you, the homeowner, to rely on high-interest credit cards to cover repairs and basic necessities.

Emergency Fund

The rule of thumb is to have enough money put aside to cover three months worth of expenses. But if you live in a disaster-prone area, you may want to aim for six months worth of expenses, if not more. Consider the possibility of a storm preventing you from returning to work for an extended period of time, which could incur more unexpected expenses.

Nearly a month after Hurricane Harvey hit in 2017, 3,900 homes in Texas still did not have power. Some people in Puerto Rico waited almost a year for the electricity to be turned back on after Hurricane Maria.

In other words, save more than you think you need. 

But coming up with three-to-six months or more worth of savings before the next storm season isn’t an easy task for most.

Loan alternatives like home equity investments can offer upfront cash that can act as an emergency fund that won't pile on any additional debt. 

Having a large emergency fund will not only help you pay for repairs and cover your living expenses if you’re out of work, it will also help you avoid high-interest debt and stay ahead of potential scammers posing as bank and insurance representatives or government agents, a common occurrence after storms.