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5 Things to Know About Flood Requirements

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Home > Education & Events > June 2018 > 5 Things to Know About Flood Requirements

Congratulations!  You have finally found the perfect property. It’s exactly what you’ve been looking for – an acreage with outbuildings so you can finally start your hobby farm, room for your kids to roam and a pretty river winding through it. It’s perfect! You’ve already been pre-approved and the appraisal is ordered, so you are on your way to owning your slice of heaven. 

Then one day your lender calls and tells you the property is in a special flood hazard zone. What does this mean? How will it affect the purchase? Should you still buy the property? Continue reading to find out the top five things you need to know about how flood requirements could affect your property.

1. When is a flood zone determination required? Federal law requires all lenders to make a flood zone determination when they make, increase, renew or extend credit where the property securing the loan contains structures with at least two walls and a roof. Most of the time the flood zone determination will come back just fine with the property. If that is the case, there is nothing further that needs to be done and most of the time you will not even know a flood zone determination has been made. But on occasion, the flood zone determination will come back indicating the property is in a special flood hazard area which requires further action.

2. What if the property is in a Special Flood Hazard Area (SFHA)? The first thing you need to do is determine if the structures on the property are actually in a SFHA. Federal regulations require borrowers to carry flood insurance on any structure(s) that are located in a SFHA. Lenders must enforce this regulation and require flood insurance when a structure is in the SFHA and located in a community that participates in the National Flood Insurance Program. 

Generally, the flood zone determination will be made on the entire property first; however, the flood zone determination company does have the ability to zoom the determination in on the structures or any specific part of the property to be able to determine the flood zone of that specific area or structure. This will be key in determining if flood insurance will be required and on what structures. Flood insurance will only be required on structures that are located within a SFHA. 
In addition, if the property is “residential improved real estate” you will also be required to escrow your flood insurance premium.

3. Who to contact for flood insurance? Ask your Property and Casualty Insurance agent first if they offer flood insurance and if they have experience with flood insurance. Not all insurance agents offer coverage for flood. If your existing agent does not offer the product, you can contact FEMA directly at 1-800-427-4661 for a licensed flood insurance agent. Your lender will determine the required minimum coverage per structure however work with your flood insurance agent to make sure you feel you have enough coverage in the event of a loss.

4. What will your lender require if your chosen property is in a Special Flood Hazard Area (SFHA)?  If the determination comes back with the property being in a SFHA, you will be provided with the flood zone determination, an acknowledgement form and possibly a map of the SFHA. You will be required to sign the acknowledgement form prior to or at closing to prove you have been made aware that your property being in a SFHA. 

If structures are located in the SFHA, further action is required. This determination should tell you exactly what structures are located in the SFHA. These are the structures that will require flood insurance. Lenders are required to ensure that appropriate flood coverage is in force prior to or at closing and may require that you establish an escrow account for your flood insurance premium if your property is “residential improved real estate”. Once flood insurance coverage is in place and it meets the lenders minimum requirements, you should be good to go! 

5. Can the flood zone change? Yes, a flood zone can change over time.  FEMA does continually review areas to determine the risk of flooding. It is recommended that you should keep flood zone determination(s) for future reference, especially if you plan on building new structures or adding onto existing structures to ensure they are outside the SFHA. It is also recommended to obtain a new flood zone determination in this event to ensure the flood zones have not changed. 
Additional resources for flood insurance requirements are available at FEMA and the National Flood Insurance Program. Compeer is also here to help. Please contact a Compeer Rural Living Solutions team member for more information about flood zones and how they may affect your dream property.
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