Flood Insurance Questions
For many years, the U.S. response to severe flooding involved constructing dams and levees and providing disaster assistance to flood victims. That was before 1968, when the U.S. Congress established a flood program to manage development in flood-prone areas and cut back on losses from flooding. As a result, home buyers who want to purchase properties in floodplains must buy flood insurance. If you're one of those home buyers, you should question whether the property is actually in a floodplain, how much coverage is necessary and how flood issues affect a mortgage.
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What are the Types of Flood Insurance?
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The cost of flood insurance is based on the flood zone where a home is located. The Federal Emergency Management Agency (FEMA) designates the zones according to the probability for flooding in the areas. FEMA's National Flood Insurance Program (NFIP) offers flood coverage, but you can also purchase policies through insurance companies. NFIP insurance is intended to provide an alternative to disaster assistance in handling the costs of repairing flood-damaged homes.
What Constitutes Minimum Coverage?
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The minimum amount of coverage must equal the outstanding balance on a home loan. However, minimum coverage won't include reimbursements for furniture, appliances and other belongings. Therefore, it's best to carry more than minimum coverage to also protect the contents of a home.
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Can You Change a Home's Flood Zone Classification?
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Lenders review flood maps when determining whether flood insurance is appropriate for the approval of a mortgage. However, borrowers who believe their properties have been incorrectly identified as being in flood zones can request that their lenders ask FEMA to review the classification.
When is Flood Insurance Required?
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Lenders regulated by the federal government require home buyers to get flood insurance if it's determined that homes they want to purchase are in floodplains or Special Flood Hazard Areas (SFHA). An SFHA property is considered to be at high risk of being inundated by a flood. Even so, developers may build within an SFHA, as long as a development complies with local regulations for floodplain management.
Can a Home Move into a Flood Zone?
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Flood map revisions can place a purchased property in a flood zone that previously wasn't considered at risk of flooding. In such cases, a lender must notify the property owner that flood insurance will be required. A bank can't make or refinance a mortgage unless the property is covered by flood insurance.
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References
Resources
- Photo Credit flood image by dinostock from Fotolia.com
