Flood insurance may be something that you never have to worry about but if the home you’re purchasing is in an area that could be subject to flooding , and it may not be a house on the water it could be a creek that runs behind your home, you may be required to carry flood insurance. There are areas that the homes are listed in flood hazard designated areas but aren’t directly connected with a body of water. These homes may just have a drainage area that can potentially cause flooding to surrounding homes. These homes would then be listed in a flood hazard zone because of storms that caused drainage issues and potential for flooding.
The Federal Emergency Management Association or FEMA is a government organization that manages flood areas throughout the country and helps Americans that have been effected by floods. They send representatives out annually and determine every so many years what areas of the country are in flood zones and what the flood hazard level is. Just because your home is on the waterit doesn’t necessarily mean it’s located in a flood hazard zone. Or maybe it’s in a five hundred year flood zone or a one hundred year flood zone, there’s different levels of potential flooding too which would regulate the requirements for insurance.
So why does this matter when you’re purchasing a house or where when you’re going to closing? Well if it is determined that the property is in some type of a flood zone it goes back to the fact that the lender is loaning you a lot of money and they want to make sure their loan is always secure. So in this case you would have a situation where the lender wants to make sure you have insurance that protects them in case that home is ever flooded and damaged severely. Why does this affect them? Well even though it’s your home if they ever have to foreclose because of your inability to make payments it’s then their home and problem to deal with before they can resell it to recuperate their loan. Therefore they would require you carry flood insurance so at least cover any potential for loss if there is a flood. Flood insurance can be expensive but it depends on the property and the flood zone the property is located in.
So this is something that you will want to know about the property before writing a contract to purchase it. Typically when you look at the home and your Realtor does the research and checks out information about the property, you will know this and other things that could affect the homes your interested in well in advance.
At closing you will sign some paperwork that that talks about whether or not the home your purchasing is in a flood hazard area. You will also sign a document that explains if this home is not is a flood hazard area at the time of the loan but if that changes due to environmental circumstances you may later be required to obtain and maintain flood insurance if necessary. If this happens it would change the amount of escrow which is included in your monthly mortgage payment.