Mortgage Lenders Requiring Flood Insurance For Home Buyers


This BLOG On Mortgage Lenders Requiring Flood Insurance For Home Buyers Was UPDATED And PUBLISHED August 16th, 2019

Mortgage Lenders Requiring Flood Insurance
Gustan Cho Team

Homeowners insurance is mandatory when borrowers have a mortgage on a home by their lenders.

  • Once the house if paid off and free and clear, it is up to homeowners whether they want to maintain homeowners insurance, also known as hazard and fireinsurance
  • Homeowners are quoted an annual homeowners insurance premium
  • The lender will escrow that amount every month and it will be part of their monthly mortgage payment
  • Monthly homeowners insurance (annual homeowners insurance divided by 12 months) is part of  housing expenses and is used to calculate debt to income ratios
  • However, some homes that are in a flood zone will be required to have flood insurance
  • Flood insurance is added on to the regular hazards homeowners insurance
  • Flood insurance can be quite costly
  •  If the home buyers are purchasing is in a flood zone, flood insurance will be mandatory in order for borrowers to close on their home
  • There are no exceptions
  • Home Buyers who are out shopping for a home and have a home that they are about to put an offer in, make sure if the home is in a flood zone and if it is, ask them what the sellers are paying for flood insurance
  • Most flood insurance costs anywhere from $500.00 and up on top of the homeowner’s insurance
  • Flood insurance premium can go over $1,000 a year depending on the area the home is located in

Why Is Flood Insurance Necessary?

Why Is Flood Insurance Necessary?

As mentioned earlier, mortgage lenders will make mortgage loan borrowers have flood insurance on flood zone areas.

  • Flood zone areas are areas where the federal government deem it as a high-risk flood area
  • Flood Areas are areas which have been determined through studies, analysis, and statistics by the federal government and resulted that the flood zone areas have far greater risks of flooding than most geographical areas that do not require flood insurance

National Flood Insurance Program

what is this National Flood Insurance Program

The federal National Flood Insurance Program has been created in 1968 and has been offering flood insurance to flood zone area homeowners.

  • Majority of private insurance carriers do not offer flood insurance
  • About a quarter of the homes in the United States are located in flood zones
  • Since only the homeowners in flood zones purchased flood insurance coverage, there were not enough homeowners to pay for flood insurance and therefore the pool of insurance funds was just limited those in flood zone areas
  • Private insurance companies stopped writing the flood insurance policy 
  • This is because of the limited amount of homeowners that they could collect premiums and there were not enough insurers to spread the insurance pool for them to be profitable
  • This is the reason the federal National Flood Insurance Program was created

Flood Zone: High-Risk Areas Prone To Flooding

what are the Flood Zone: High-Risk Areas Prone To Flooding

The National Flood Insurance Program determines a high-risk flood zone area where through their use of topographical surveys where they can scientifically determine low lands prone to flooding, is a geographical area that has at least a 1.0% or higher chance of flooding in any year.

  • So, if the land where your home is built on has a 1.0% or greater chance of flooding in any given year, your property is considered to be located in a flood zone
  • It has a high-risk probability of flooding

Can Lenders Requiring Flood Insurance If It Is Not On Flood Zone?

Can Lenders Requiring Flood Insurance If It Is Not On Flood Zone?

Federal mortgage lending guidelines require that lenders make their borrowers have flood insurance on federally named high-risk flood zones.

  • However, there are low-risk flood zones where the federal government does not require homeowners to carry flood insurance
  • However,  Mortgage Lenders Requiring Flood Insurance can require a homeowner to carry flood insurance in a non-federally named flood zone area
  • It is a lender’s overlay and lenders can implement any overlays they want including Mortgage Lenders Requiring Flood Insurance when it is not necessary
  • Borrowers are not happy overlays can choose a different lender that does not have mortgage lender overlays or very limited mortgage lender overlays

Borrowers who need to qualify for a mortgage with a direct lender with no overlays, please contact The Gustan Cho Team at Loan Cabin at 262-716-8151 or text us for faster response. Or email us at We are available 7 days a week including weekends and holidays. Gustan Cho Associates has no overlays on government and conventional loans.

For a quote on flood and/or other insurance services, please contact Giuseppe at the following:

975 E Nerge Rd, Ste N110 | Roselle, IL 60172
Office: 630.295.8514 ext. 92105 | Fax: 630.405.6050

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