Since it is hurricane season half of the year in the Southeast, let’s talk about flood insurance. Flood insurance covers a property in the case of damage or loss from flood waters. Most homeowners insurance policies exclude coverage for flood damage. For the most part, flood insurance covers rising water. Conversely, homeowners insurance would typically cover damage from falling water, burst pipes, or other hazards. Therefore, damage to a roof from rain would fall under homeowners insurance where rising water from a river, lake, or similar should fall into the realm of flood insurance. For mortgage borrowers, lenders will make sure of the property’s flood risk.
What is the Flood Certification Fee?
Mortgage borrowers are often curious about the $12 – $18 flood cert fee on their loan estimate. This fee is a very common third-party closing cost fee passed onto the borrower. It is a flood certification company providing a life of loan certification of the flood zone status. So, for the life of the mortgage loan, the lender is notified of any flood zone changes. Why do lenders care so much? They care because the dwelling is usually a significant portion of the collateral’s value. If the property is damaged, the value decreases. Thus, in the event of a foreclosure, the lender may not get paid back in full. Therefore, lenders want to know the flood status and that the home is covered with flood insurance at all times.
How Do You Determine if a Home is in a Flood Zone
What if you own a home and not sure if it is in a flood hazard area, or what if you are researching a home as a Realtor® or buyer to see if it is in a flood zone? Well, there are a few ways to research for properties that may be in a flood zone:
- County GIS flood map
- Call local zoning board
Floodsmart.gov is a great resource to research flood insurance requirements as well as find flood insurance agents. Keep in mind, that FEMA may change flood maps in each area. Typically, these are reviewed about every seven years, but there could be interim changes when necessary. Also, homeowners are not notified when FEMA reviews their area. By reviewing local flood maps or the FEMA schedule, one can see when the local area will be reviewed. This could be important if an area changes to a flood hazard area because an appeal must be made within 90 days. Familiarize yourself with your local county GIS flood map. Plus, know that you can call or visit your local zoning board for valuable information.
What if Part of the Property is in a Flood Hazard Area?
Sometimes only a portion of a property is located in a flood zone. When this is the case, it is common for the lender’s flood certification to require flood insurance. However, if the structures included in the appraised value are not in the flood zone, flood insurance is typically not required. Sometimes only a portion of the land is in a flood hazard area. Although if any portion of the structure is in the flood hazard area, then flood insurance is required.
Flood Elevation Certificate
How can one prove the structure is not in the flood zone? There are a few ways. First, an existing or new survey may be used to show the exact location of the structure on the property. If the flood certification company sees the structure location in relation to the flood zones, a more accurate determination is made. Another solution involves a flood elevation certificate.
An elevation certificate, prepared by a professional surveyor, also shows property details like flood zones and structure location. Plus, it determines if the house is properly vented to mitigate flood risk if below the base flood elevation. Finally, it shows if all finished structures are above or below the base flood elevation. These are some of the main factors for determining the flood insurance cost. For instance, the higher above the floodplain, the cheaper the flood insurance premium.
Elevated Homes Affect on Flood Insurance
Homes placed on a raised foundation or stilts have advantages for flood insurance. A popular misconception is that elevated homes on stilts do not require flood insurance. This is not true. If the home is in a flood hazard area, flood insurance is required. The higher the base floor level is above the floodplain, the cheaper the insurance will be. There is certainly a flood insurance premium advantage by having a home on stilts.
Buyer Tips for Flood Zone Properties
Buyers considering a home in a flood hazard area need key information to make a decision. Think about it – There is an insurance that could make a small or drastic effect on the housing payment. Hence, up-front information is needed to feel confident about the flood insurance expense. Buyers should request the following to make the purchase decision easier:
- Existing flood policy
- Elevation Certification
- Insurance Agent
- Local Mortgage Lender
As discussed earlier, an elevation cert or survey will help with an accurate flood insurance quote. There is also the potential to assume an existing flood policy. Assuming a policy could have an advantage of a grandfathered lower premium compared to a new policy premium. Therefore, a buyer should always ask about the existing policy. It could actually save a lot of money. Also, have an insurance agent who is knowledgeable in how flood insurance works including strategies to lower premiums.
Finally, working with a local lender familiar with the area will help.
Selling a Home in a Flood Zone
Above shows how important it is for a buyer to have information to determine the flood insurance expense. As a seller, why wouldn’t you make this information easily available to a prospective buyer? Believe it or not, many buyers find that retrieving helpful information is difficult. Then, the buyer is left to their own to order an elevation certification just to get a flood insurance quote. A seller should be proactive and provide information up-front. Make it easier for buyers. Decreasing the unknown will increase the chance of attracting a buyer.
If you are thinking of buying a home in a possible flood zone, contact your OVM Financial loan officer now.