Flood Insurance Details

4 Replies

Hi Everyone,

I am slightly confused by flood insurance, the different tiers, and how that ties into home insurance as a whole.

For context: I am looking at a duplex that is currently in the 'highest tier' for a flood zone and will, therefore, require a flood insurance policy. The house was for sale as 'cash only' but the realtor found out the owner will accept loans. I was told the 'cash only' was likely out there so that a buyer would not need to purchase a year's worth of flood insurance up front to get financing. I was also told that the property is being re-surveyed to try and drop it to a lower tier of flood zone, which should decrease flood zone insurance costs. Further, the house recently was 'waterproofed'. Finally, according to FEMA Flood Map, it is a floodway Zone AE.

My questions are:

  1. When using bank financing for a house in a flood zone, are you required to purchase a year's worth upfront and then make monthly payments?
  2. How easily can individual properties be rezoned to a different flood zone? 
  3. Does waterproofing a house help change a property's flood zone?
  4. Is flood insurance added on top of home insurance?
  5. What are the different levels of flood zones and about how much of percentage drop/increase in price is attributed with each successive flood zone?

This will be my first real estate deal too. I plan on living in the lower unit and holding the property long-term. The location is fantastic (block away from a major hospital and a mile from a major university) so property value should increase over the life I will hold it. I am not too caught up on making sure it positively cash flows while I'm living in it either.

I know a few of these questions will be better answered by an insurance agent but I'm curious about general sentiment from investors who have spent time dealing with homes in a flood zone and get a feel for the thought process I should be adopting when it comes to looking at this issue.

Thanks in advance!

Hi Eric I'll try to answer some of these for you but suggest you find a local  insurance agent familiar with investor properties  to get into the details. I can't stress enough finding an agent who has experience with investor properties!

Here goes - following your 1-5 questions above.

1. If you are getting a loan and the property is in a flood zone - Yes the lender is going to mandate you purchasing flood insurance

2. Rezoning - not going to go there but... on a long shot you could get a survey done and if it verifies the elevation of the lowest portion of the building being above the flood plain elevation then you might be able to get the lender to drop the requirement for flood insurance.

Side note - also being in a flood zone may be a reason the seller has stated they only want cash buyers?

If the seller currently has a flood policy you may be able to assume that policy vs purchase new and if it has been on the books for awhile could be much less expensive than a brand new policy.

3. Does waterproofing help? Unfortunately no it does not.

4. Yes - Flood insurance is a separate policy from a homeowners (or landlord) policy. The Flood policy is set up by NFIP and is a government backed policy but can be "sold" to you by any agent licensed for your state. There may be a private flood policy offered in your state (again a local agent would have to answer that for you)

5. That's a very complicated question. Going off your profile saying Niles Michigan check out this link

https://msc.fema.gov/portal/search?AddressQuery=Niles%2C%20Michigan#searchresultsanchor

I have no idea how that is going to load but if it does - zoom in 1x.

See those stripey areas along what is probably a river and in the map key they are labeled "AE"?

See the areas surrounding it labeled "X"?

AE is going to be expensive vs the areas labeled X.

Generally speaking a bank won't require you to get flood insurance in an X zone and from my experience they pretty much always require it in AE zones.

I hope that helps. Good luck!

*None of the above info should be considered legal or insurance advice - consult an attorney and/or insurance agent for your state for proper guidance on these matters*

Thanks for the thorough response and advice @Michael Norris !

A few follow-up questions/comments:

  1. In regards to purchasing the flood zone insurance, would a year's worth need to be purchased up-front and then put into escrow? Or just having a policy signed and agreed upon? 
  2. In regards to rezoning, I was told by the realtor that the seller is paying for the rezoning already and the initial survey "looked good". I'm not holding my breath and will just look at the property as if it won't be re-zoned. According to the FEMA map, it appears that a small part of the property may be in the Floodway Zone AE versus the standard Zone AE (see image below) and perhaps that's the "looks good" part of the new survey?

Eric,

I don't think you can pay to rezone.  In order to rezone the NFIP would have to change the flood maps.  Most likely, the owner has hired a surveyor to do an elevation certificate that determines the actual elevation of the buildings lowest floor.   In the Flood program (specifically the Post FIRM section) the elevation can impact the rate positively or negatively. 

You mention Waterproofing the house.  Not sure what that means.   If it is Flood proofing (adding breakaway panels, clearing mechanicals out of lower levels, raising the house, etc.) that could impact the rates.  If the waterproofing is something else it may not.

Investigate If there are non-NFIP flood policies available in your area.   Sometimes they can be less costly than the NFIP policies or can provide better coverage.

Thanks for the response, John.

I'm not entirely sure what waterproofing means in light of flooding, but I think it is flood proofing, like you were saying. Here is the link to the specific company's overview of waterproofing. 

What is the catch in getting non-NFIP flood policies? 

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