It’s a common dillema that many home buyers run into throughout the United States. You’ve found the seemingly perfect home with all the features you want, plenty of space and maybe a babbling brook in the backyard, or perhaps it’s near the lake that you used to frequent on family vacations as a child. You submit an offer to the sellers and go under contract! All is well, right? Not so fast – you may find that the home resides inside of a special flood hazard area (SFHA) and then you’ll find out from your loan officer that you’ll have to by flood insurance. The Lender requiring flood insurance is an issue that comes up quite frequently.
So why is the lender requiring flood insurance?
Essentially if you’re purchasing a property that resides in one of the various “A flood zones” according to FEMA’s mapping structure, that means that the property is in a 100 year flood plain. A 100 year flood plain is a confusing concept to some people, because they think that it means there is a 1 / 100 chance the property may flood within 100 years. This is not the case – a 100 year flood plain really means that there is a 1% chance every year a flooding event could occur. So, for example, it’s possible that a “100 year flood” could occur two years in a row if conditions were right. That’s why the lender requiring flood insurance is a reality if you’re purchasing a home in a flood plain. In fact according to FEMA’s own stats, there is a 26% chance that a property could flood within a 30 year mortgage term – so the risks are a lot higher than the 100 year terminology suggests.
If you were purchasing the home with cash, you would not be required to purchase flood insurance, but it would be a very good idea because homeowners insurance provides no protection from the peril of flooding.
Because the mortgage company wants to protect their collateral (and you of course would want to protect your purchase) flood insurance becomes mandatory for anyone purchasing a property using a federally backed mortgage. But, fear not – your lender requiring flood insurance doesn’t mean you are just stuck with one option. Formerly, the only place you could get flood insurance was through the NFIP (National Flood insurance program) but private insurance market alternatives are getting bigger and more popular every year – and often times we can save insureds up to half of the cost of a FEMA / NFIP flood policy. The underwriting standards of private flood insurance are different, so not every property may be eligible for a private flood insurance policy – but it’s certainly worth weighing your options to see if you can save money on your premiums.
If you’re purchasing a home in a flood plain and need a quote for insurance – fill out the form below and we’ll be in touch with you.