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FHA flood insurance requirements

 Flooded houseWhen shopping for a house, take notice of any streams, rivers, ponds, and other sources of water near the home, because the lender may require flood insurance as a condition for the loan. The typical homeowner’s insurance policies do not cover flood water damage. It only insures against damage caused by water falling from the sky. After the rain-water touches the ground and enters your home, it’s a flood, and only flood insurance will pay for the damage.

According to the Federal Government, there is at least a one in four chance of flooding during a 30-year mortgage in high-risk areas.

Under federal law, the purchase of flood insurance is required for all federal or federally related financial assistance for the purchase and/or construction of buildings in high-risk flood areas. Fema.gov

The Flood Disaster Protection Act requires that lenders make a flood determination any time it is making, increasing, renewing, or extending a loan on your property.

The total amount of flood insurance coverage required by the Flood Disaster Protection Act of 1973 and subsequent revisions is the lesser of the following:

1. The insurable value of the structure.
2. The outstanding principal balance of the loan, or
3. The maximum amount of coverage available for the particular property type,

Federal law does not require flood insurance in moderate - to low-risk areas; however, a lender can still require it. In fact, more than 20-percent of all flood insurance claims come from areas outside of high-risk flood zones.

The minimum amount of flood insurance coverage for most first mortgages secured by one - to four-unit properties, individual PUD units, and certain individual condo units (such as those in detached condos, townhouses, or row houses) is the lowest of:
the unpaid principal balance of the mortgage,
100% of the replacement cost of the insurable value of the improvements; or
the maximum insurance available from the National Flood Insurance Program, which is currently $250,000 per dwelling;

Contents coverage (i.e. couch, appliances, etc.) must be purchased separately. Flood insurance does not pay more than the policy limit; usually $100,000.

If you have a $300,000 house that's a complete loss as a result of a flood, the most you can receive through the program is $250,000; which only covers the structure itself.

Flood insurance escrow

After January 1, 2016, lenders are required to escrow all premiums and fees for flood insurance, subject to certain exceptions.

Flood insurance rates in high-risk areas are calculated based on a variety of factors, including elevation and building construction. The average flood insurance policy costs about $700 per year.

There's a 30-day waiting period from date of purchase before your policy goes into effect.

You can determine the flood risk and estimate the flood insurance cost at FloodSmart.gov. You can also find a flood insurance agent at the FloodSmart.gov web site as well.

Is flood insurance required for FHA loans?

When any portion of the residential improvements is determined to be located within an Special Flood Hazard Area , insurance under the National Flood Insurance Program must be obtained.

A Property is not eligible for FHA insurance if:

- a residential building and related improvements to the Property are located within SFHA Zone A, a Special Flood Zone Area, or Zone V, a Coastal Area, and insurance under the National Flood Insurance Program (NFIP) is not available in the community; or

- the improvements are, or are proposed to be, located within a Coastal Barrier Resource System (CBRS). Source: FHA single-family Housing Policy Handbook

Required Flood Insurance Amount

For Properties located within a SFHA, flood insurance must be maintained for the life of the Mortgage in an amount at least equal to the lesser of: · the Appraiser’s estimated replacement cost, less the Appraiser’s estimated site value; · the outstanding balance of the Mortgage; or the maximum amount of the NFIP insurance available with respect to the property improvements.

FHA flood insurance deductible requirements

The Homeowner Flood Insurance Affordability Act of 2014 repealed and changed specific provisions of the Biggert-Waters Flood Insurance Reform Act, which was enacted in 2012.

Previously, the maximum deductible amount for a flood insurance policy could not exceed the greater of $1,000 or 1 percent of the face amount of the policy for an FHA home loan.

In addition to several other changes, the new law states for residential properties (non-condo), flood insurance deductible shall be made available in various amounts, up to and including $10,000 for FHA loans.

Rotating question markFrequently Asked Questions About Flood Insurance

Q. Can you get flood insurance in a flood zone?
A. Yes

Q. Does flood insurance cover additional living expenses?
A. No

Q. Does flood insurance cover appliances?
A. Refrigerators, cooking stoves, and built-in appliances (i.e. dishwashers) are covered

Q. Does renters insurance cover flood?
A. Probably not. Flood coverage is obtained through a separate flood policy