Answers about Flood Insurance
With the approach of another hurricane season
and the increase in mortgage loan re-financing, many of you may have questions
about the need for “flood insurance” on your property. As such, we have
compiled several short questions and answers, as to this particular subject,
in order to help you better understand a bank’s requirements whenever it
makes a mortgage loan.
What is flood insurance?
Flood insurance covers losses to your property
caused by flooding. Most standard policies will cover:
- structural damage
- furnace, water heater and air conditioner
- flood debris cleanup
- floor surfaces such as carpet and tiles
A flood policy can also be purchased to cover
the personal contents of your home, such as furniture, collectibles, clothing,
jewelry, and artwork. Check with your insurance agent on your homeowner’s
policy to find out what coverage you currently have on personal belongings.
I applied for a mortgage loan and the bank
is forcing me to buy flood insurance. Can it do this?
Yes. If your property is an area determined
by the government to be in a flood plain or in a Special Flood Hazard Area
(“SFHA”), any federally regulated lender will require you to buy flood insurance
before you get a mortgage loan. You do not, however, have to buy the policy
from the bank; it can be purchased through insurance companies that sell
policies through their network of agents.
The premiums for flood insurance vary
depending on the zone in which the property is located.
When I first purchased my property, it wasn’t
in a flood plain, but when I refinanced my mortgage loan the bank said the
flood maps had changed and flood insurance was required. Is this possible?
Yes. Flood map designations are subject to change and if
a bank learns that a flood map revision identifies a structure securing
a loan as having been placed in a Special Flood Hazard Area (SFHA), the
bank must notify you that flood insurance is needed. In fact, a national
bank may not make, increase, extend, or renew any mortgage loan unless that
property is covered by flood insurance (for properties determined to be
in a SFHA).
Can a bank require that I escrow the premiums
for flood insurance?
It depends. If the lender requires the borrower to
escrow for other funds associated with the loan, such as taxes, insurance
premiums, or any other fees or charges, the escrow of flood insurance premiums
Is this flood insurance requirement only on residential
No. The flood insurance requirements discussed
above apply to any “structure” located in a flood plain or SFHA therefore,
flood insurance will be required on commercial properties as well.
Is there someone I can contact, other than the
bank, if I have flood insurance questions?
Yes. You may contact the Federal Emergency Management Agency
(FEMA) directly at their assistance center at 1-877-336-2627.