A Lender Can Demand You Get Excess Flood Insurance
Hurricanes and storms wreak havoc on communities, sometimes resulting in flooding. People often assume only waterfront properties suffer damage but, as the news often show, this is not so. Homes within several miles of rivers, creeks, bayous, and lakes flood. These areas are considered flood plains. Anyone buying or building a home in a flood plain using a mortgage for financing is required to obtain flood insurance. If your home exceeds a certain value, you will need to purchase excess flood insurance.
MORTGAGE LOAN PROCESS
When you enter into an agreement to buy a home, unless you pay cash, you will need to get a mortgage loan to fund the purchase. The loan process includes a survey, an appraisal, and any inspections the lender deems necessary. This is all done to set a true value for the house.
SPECIAL FLOOD HAZARD AREAS (SFHA)
Your survey or appraisal may show your property is located in a flood zone. Homeowner insurance policies do not provide flood coverage. The Flood Disaster Protection Act of 1973 requires homeowners using federal assistance to buy, fix, or build a home to purchase flood insurance when a home is located within Special Flood Hazard Areas or SFHAs. Federal assistance includes loans guaranteed or insured by the VA, FHA or USDA. Conventional lenders generally follow the same guidelines.
FLOOD INSURANCE COVERAGE
Typically, the lender will require flood insurance sufficient to only cover the mortgage loan amount. If you buy a home for $150,000 with a 10% downpayment, you only need to purchase $135,000 in flood insurance. However, to protect your equity in the home, you may wish to purchase a policy for the total price of the home.
NFIP
The National Flood Insurance Program covers some flood-threatened homes. However, it only covers buildings up to $250,000, and personal property up to $100,000. If your home is worth more than a quarter million, the lender will demand you get excess coverage to make up for the difference.
TERM
Just as with regular home insurance, also known as hazard insurance, the mortgage lender will require that you maintain your flood policies in good standing throughout the life of the loan. Any noncompliance could trigger a default.
MORTGAGE LOAN PROCESS
When you enter into an agreement to buy a home, unless you pay cash, you will need to get a mortgage loan to fund the purchase. The loan process includes a survey, an appraisal, and any inspections the lender deems necessary. This is all done to set a true value for the house.
SPECIAL FLOOD HAZARD AREAS (SFHA)
Your survey or appraisal may show your property is located in a flood zone. Homeowner insurance policies do not provide flood coverage. The Flood Disaster Protection Act of 1973 requires homeowners using federal assistance to buy, fix, or build a home to purchase flood insurance when a home is located within Special Flood Hazard Areas or SFHAs. Federal assistance includes loans guaranteed or insured by the VA, FHA or USDA. Conventional lenders generally follow the same guidelines.
FLOOD INSURANCE COVERAGE
Typically, the lender will require flood insurance sufficient to only cover the mortgage loan amount. If you buy a home for $150,000 with a 10% downpayment, you only need to purchase $135,000 in flood insurance. However, to protect your equity in the home, you may wish to purchase a policy for the total price of the home.
NFIP
The National Flood Insurance Program covers some flood-threatened homes. However, it only covers buildings up to $250,000, and personal property up to $100,000. If your home is worth more than a quarter million, the lender will demand you get excess coverage to make up for the difference.
TERM
Just as with regular home insurance, also known as hazard insurance, the mortgage lender will require that you maintain your flood policies in good standing throughout the life of the loan. Any noncompliance could trigger a default.
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