Wish I didn't have to make this thread but I find myself in the position of a lender and insurance broker both telling me the other is wrong so I'm hoping for some third party advice on this.
I am far along under contract on a three unit with inspection waived, all EMD submitted and on track to close August 3. I found out late in the game that the property is in the 1% annual chance zone so flood coverage is required.
I thought the premiums on the flood insurance were going to be reasonable because I'm only required to cover the unpaid principal balance on the loan. That amount is $85,500 and I got flood quotes for $1100-1400 depending on deductible. More than I wanted to pay but doable with the numbers. Then today the lender notified me that they require both the flood and homeowner's policy to have the same coverage amounts. The current rebuild cost estimate on the house is $311,000 which is higher than coverage is even available from the NFIP. When the insurance broker runs flood numbers at the $250,000 NFIP maximum the premium is $3000 a year, a total non starter and still doesn't even solve the problem of the coverage not being the same.
The lender is telling me that I just need to drop the homeowner's coverage to $85,500 to match the flood and everything will be fine. Of course that leaves me with nothing other than a free and clear pile of ashes if my primary residence burns down and I only had coverage to pay off the note. The insurance broker says he cannot write a replacement policy for less than 100% of the rebuild estimate, and even an ACV policy does not allow him go to lower than something like 80% of the rebuild cost. So according to him the only option I have is to max out flood coverage to match because the homeowner's cant go that low. He also said he has never heard of a lender requiring both amounts to be the same and suggested I shop for a different one. That is tough to do at this stage as I am using a branded Freddie Mac product that allows 5% down on a three unit so I can't just take this to another local bank and get the same terms.
Appreciate any advice on how to proceed, I don't want this deal to fall apart but it sure will if the alternative is paying $3,000 a year in flood insurance. I tend to lean with the insurance broker's side on this, if the lender's maximum exposure of $85,500 is covered by both homeowner's and flood insurance I don't see why it matters if one policy has a higher upper limit than the other. Help!