This ARTICLE Is About The Flood Insurance Mortgage Guidelines With Homes In Flood Zones
Flood insurance can be incredibly expensive and may even deter you from buying a specific property. In this blog, we will detail when flood insurance is required for mortgage lending, the basics surrounding mortgage insurance, and some tips to keep your investment protected. Flood insurance is required in specific areas of our country. Most people do not know this, but floods are the most common natural disaster in the United States. Floods happened in areas all throughout the country, not just by waterways and oceans.
Floods can be caused by hurricanes, heavy rains, flash flooding, and even issues in the sewers. Flooding has been recorded for hundreds of years in our country. This has helped create the HUNDRED YEAR FLOODPLAIN map. The Federal Emergency Management Agency or FEMA has an interactive map available here. You may check if your property is located in a flood zone or not. In this article, we will discuss and cover Flood Insurance Mortgage Guidelines With Homes In Flood Zones.
Dangers Of Flood Damaging Homes
Each year it is estimated that floods will drive about 75,000 Americans out of their homes and an average of 127 people die a year from flooding in the United States. Flights have caused billions of dollars in damage in a single year. It is documented between the years 1985 and 2001, there were a total of over 32,000 flooding events in the United States alone.
Difference Between Flood Versus Homeowners Insurance
It is important to understand the differences between homeowner’s insurance and flood insurance. Homeowners insurance is required for any home with mortgage financing. This will cover the home for the majority of damages but will not cover flooding/damage caused by a flood. You must have a separate flood policy for this destruction to be covered.
Flood Insurance Mortgage Guidelines With Property In Flood Zones
What do you do if the property you are located and is in a flood zone?
Click here to check if your property is in a flood zone: FEMA FLOOD MAP
The first thing you’re going to need to do is shop around for flood insurance. Flood insurance can be a major expense and will be factored into your debt to income ratio. In the past, we have seen borrowers not apply for a house in a flood zone because the housing payment becomes too high with the added flood insurance. It is important to ask your realtor if a property is located in the flood zone. Even if you are right on the verge, there is a chance it will be part of a flood zone in the future and eventually you will need mandatory flood insurance. If you are in an area with heavy flooding, flood insurance could save you thousands of dollars in the long run. It is a protection on your real estate investment.
Flood insurance policies cover physical damage to your property and possessions. Flood insurance is mandatory by mortgage lenders if the property is located in a flood zone. Homeowners insurance is required no matter what on all financed properties with a mortgage. However, if the property is located in a national flood zone, flood insurance is also required in addition to homeowners insurance.
- Just because homeowners haven’t experienced a flood in the past, doesn’t mean they won’t in the future
- Flood risk isn’t just based on the history of the property; it’s also based on a number of factors
- Other factors include the amount of rainfall, river-flow and tidal-surge data, topography, flood-control measures, and changes due to building and development in the subject area
Flood Insurance Policy
The normal homeowner’s insurance policy coverage limits for Building Property goes up to $250,000 and Personal Property (Contents) should be insured up to $100,000.
- I encourage my clients to purchase both types of insurance
- This holds true especially for homeowners flood zones
Floods can do severe damage to a home. Many times a home that has been damaged due to a major flood needs to be demolished and rebuilt from scratch.
Do Lenders Require Flood Insurance?
Lenders require flood insurance to protect the investment of the asset that has their loan attached.
- Flood is a risk that is not normally on a regular insurance policy
- Since a flood could destroy a home and foundation, the lender wants to protect the property and ensure that there is little probability that the home will be unlivable
- Flood insurance is available to homeowners, renters, condo owners/renters, and commercial owners/renters
Costs vary depending on how much insurance is purchased, what it covers, and the property’s flood risk.
What Does Flood Coverage Do?
Many things are covered by flood, for instance, the insured building and its foundation, the electrical and plumbing systems, central air-conditioning equipment, furnaces, and water heaters, refrigerators, cooking stove:
Items normally not covered can vary, I will list just a few items not covered by flood insurance:
- Currency, precious metals and valuable papers such as stock certificates
- Property and belongings outside of an insured building such as trees, plants, wells, septic systems, walks, decks, patios, fences, seawalls, hot tubs, and swimming pools
- Living expenses such as temporary housing
- Financial losses caused by business interruption or loss of use of insured property
Most self-propelled vehicles such as cars, including their parts (see Section IV.5 in your policy).
Does My Homeowners Insurance Cover Flood?
If a flood happens and homeowners don’t have a flood policy, most likely their regular insurance policy will not be able to assist.
- Most policies don’t have proper riders and coverage already and without flood coverage, the asset could be in jeopardy
To be sure that you are fully protected from all of nature’s flood risk and damage to home or property contact homeowners insurance agent.
National Flood Zone Areas
There are numerous different flood zones on the map provided by FEMA. These zones include zones A, AE, A1-30, AH, AO, V, VE, V1-30, B, C, X, shaded X, AR, and A99.
Zone A, AE, A1-30, AH, AO, V, VE, V1-30- These areas are the highest risk areas. These are known as Special Flood Hazard Areas (SFHAs). Flood insurance is mandatory for any structure with a mortgage from a federally regulated or insured provider. Even if you do not have a mortgage, FEMA strongly suggests keeping your flood insurance policy in these areas.
Zone B, C, X, shaded X – still has the potential for flooding. This zone is considered moderate to low risk. Flood insurance is not federally required but recommended. Depending on your lender, the lender may require flood insurance.
Zone AR – this zone represents an area where a Levi is determined to no longer provide flood protection. The levee will be in process of being restored but until it is complete, flood insurance is mandatory for any structure with the mortgage. Flood insurance must be fed you early regulated or from an insured lender. Flood insurance rates are the same as zones B, C, and X.
Zone A99 – Same information as Zone AR but the levee is a Federal levee under construction. Zone AR refers to a NON-Federal levee.
Flood Insurance Mortgage Guidelines And Types Of Coverages
Flood insurance has different levels of coverage. Even if you are not in the flood zone, you may still want to have flood insurance. Some flood insurance policies will only cover the structure of your property but not your personal belongings. It is important to understand the difference and have an educated conversation with your flood insurance agent. Nothing is worse than your home being destroyed by a flood and insurance will not replace personal items, furniture, or appliances. This can leave you in a deep financial hole. If you are in a flood zone, talk to your insurance agent about ways to lower your insurance premiums.
We have heard stories of elevating your furnace and air-conditioning units or even raising your entire home on stilts to lower your flood insurance premium cost. It is also important to manage your flood insurance policy after your mortgage is paid off. Once your mortgage is paid off, you are no longer required to have flood insurance, but it is a good idea to keep the coverage. In the past few years, hurricane seasons have been very strong. The storm surge has caused flooding areas hundreds of miles north of the coast. All things to keep in mind if you have traditional homeowners’ insurance and not carrying an additional flood policy.
High Cost Of Insurance
Insurance always seems like an unnecessary cost until you need to use it. I personally know the devastation flooding can cost from speaking with clients in the past. A flood can happen to anybody at any time. Many environmental experts predict flooding will become worse in the future due to our changing climate. Gustan Cho Associates are here to provide you information and advice to purchase the home of your dreams. However, we are not licensed insurance agents. We have working relationships with many insurance agents across the nation and we can help direct your questions to them. For more information on flood insurance, please call Mike Gracz on (800) 900-8569.
