You Put An Offer On a Home, Now The Lender Says You Need Flood Insurance

You put an offer on a home, now the lender tells you you’re in a flood zone and you need Flood Insurance.

This is a situation that has been happening more frequently since the Flood Plain Maps were re-drawn in the Attleboro and surrounding towns in 2015-2016.  Homes that were once in a Zone "X" are now in a Flood Zone "AE".  Mortgage companies don't require a borrower to obtain Flood Insurance in an "X" Zone but they do require it in an "AE" Zone and often this requirement is discovered by the buyer well into the home purchase process, even after the P&S has been signed.  Following are some pitfalls to avoid:

1. Do not assume that if the Seller has Flood Insurance that their premium will be the same premium you'll be paying.
2. Do not rely on the Seller's Flood Insurance Policy being transferable to you.

We are often told by buyers that the Seller’s Realtor informed them that the Seller is only paying a few hundred Dollars per year and that Flood Insurance Policies are transferable from the Seller to the buyer.   There are several factors that determine the Flood Insurance premium, one of the primary factors is the Dwelling coverage limit.  Mortgage companies only require that the borrower purchase Flood Insurance up to the amount of the mortgage, not the Replacement Cost of the home as they require for the standard homeowners “hazard” insurance.  This means that if the Seller only has a small mortgage or equity line, their couple hundred Dollar Flood policy might be based on a $25,000 mortgage balance or equity line and not the higher mortgage amount required by your lender.    In addition, many homeowners place Flood Insurance directly through their mortgage company and those policies are not transferable.  Finally, there are circumstances where the seller may have been able to grandfather the Flood Zone for a short period of time which a new buyer will not be able to do and even if the seller can transfer a grandfathered policy, FIRM and Zone Grandfathering is voided if "Substantial Improvements" are done to the home which can result in many thousands of Dollars difference in premium.

Flood Insurance policies can easily reach a couple/few thousand Dollars so you if you find out you need Flood Insurance you should get a quote from the same Agent who’s quoting your homeowners insurance.  Most agents write Flood Insurance as an accommodation for existing clients and Flood Insurance is generally not competitive – you shouldn’t see much of a difference in premium from one provider to another if the same rating factors are used since Flood Insurance ultimately is underwritten by the Federal National Flood Insurance Program.  Also, ask if the Seller has an Elevation Certificate or consider having one done yourself, often this can help reduce the Flood Insurance premium.

Feel free to contact us if you have any Flood Insurance related questions.