Are they required to have Flood Insurance?

Do they really need it?

Let's discuss those questions...

This edition is a followup to our recent newsletter on Property Insurance. With hurricane season just starting, it's time to get into further detail about Flood Insurance.
Currently there is much political debate over the financial solvency and future structure of the NFIP. What is presented below outlines lenders' guidelines and perspective as things stand today. Helping your buyers and sellers understand the basics will add to their comfort levels throughout the entire real estate transaction. 

As we have before, let's start with a few definitions:
NFIP - National Flood Insurance Program, created by
             Congress  in 1968 to address recurring significant property
             losses  due to flooding.
FIRM - Flood Insurance Rate Map created by FEMA (Federal
             Emergency Management Agency) showing areas of
             relative flood risk (flood zones). FIRMs are updated
             periodically to reflect changes in observed flood patterns,
             residential and commercial development, road
             construction, and other factors affecting an area's flood
             risk and BFE.

BFE -  Base Flood Elevation - level within a flood zone to which
             floodwaters have at least a 1% chance of reaching during
             any given year.
Elevation Certificate - document completed by an authorized
             surveyor, civil engineer, or architect that shows a
             structure's flood zone, design, position on the property,
             and lowest point relative to the BFE.

Cities, towns, counties, and communities voluntarily participate in the NFIP by adhering to the floodplain management practices put out by FEMA and having their FIRMs updated periodically.
Two laws direct all Federally-overseen lenders (just about all companies extending mortgage loans in the US are Federally-regulated) to require Flood Insurance for the acquisition or construction of buildings in Special Flood Hazard Areas, identified as A or V zones on a FIRM.
They are the Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 .
In addition to Federal regulation, for decades lenders have required Flood Insurance as part of their own risk management when extending financing on properties in these higher-risk zones. This applies to refinances as well as purchases.
Flood Insurance is only required on financed properties located in
flood risk zones starting with "A" or "V", as shown on the FIRM.
Many lenders now want Flood Insurance premiums escrowed
along with property taxes and other hazard insurance.
If your buyers learn only these 2 points from you about Flood Insurance, they'll know more than most others!
If a property is owned free and clear or is being purchased with all cash, the owner may choose to be "self-insured", personally accepting full risk and paying for any damages out of pocket.
However, homeowners/hazard insurance policies specifically exclude flood damage.
Even when financing is not used, Flood Insurance is a good idea for properties in those A and V higher-risk zones, especially if the first floor is not elevated from street level.

As we mentioned in the recent introductory newsletter on property insurance, maximum coverage under NFIP Flood Insurance for single-family properties is $250,000.

If that seems low compared to property values in your area or neighborhood, keep in mind that complete destruction of a property rarely occurs during flood conditions.

Most common flood damage is to ground-floor :
- flooring
- drywall
- furnishings
- electrical outlets and wiring
- HVAC outdoor components
As with other property hazard insurance, only the improvements (structures) on a property are being insured.
The land value is not covered by hazard or Flood Insurance.
What determines Flood Insurance applicability and rates?


    - Property location on the FIRM (geographic flood zone risk)


    - Type of  construction (concrete block, wood frame, modular;

      foundation design - block, poured slab, piling)


    - Lowest floor height in relation to BFE, and building position

      on property (Elevation Certificate information)


    - Occupancy (primary residence or second home)


    - Flood mitigation measures (flood vents, breakaway non-

      structural first floor walls, elevated electrical service and



    - Year built


    - History of severe repetitive flood losses 


How do we apply everything we just mentioned to a specific property?
The first step is to find the property on a flood map (FIRM) so we can determine the NFIP zone. The following sites are clickable links, then enter the street address on that page :
Collier County:

Lee County:

Miami-Dade County:

Anywhere in the US:

Remember - Flood Insurance is only required
when there's financing involved and the property
is in a flood zone starting with an "A" or a "V".
If the property IS in an A or V flood zone and the buyer will be using financing, we need an Elevation Certificate to see the BFE and the lowest floor's relationship to that BFE. Since ECs are often done along with a survey, the seller or property owner may have one. If none can be found, a new one will be needed.
Many counties and cities keep Elevation Certificate information on file. Check with your area's floodplain management office before ordering a new one.
At this point, it's time to turn things over to a licensed insurance agent trained and experienced in the NFIP and how it relates to South Florida properties. He or she can then give your buyer or homeowner an idea of premium costs.
While types and amounts may be set by the mortgage lender for any mandatory insurance coverage - the company, agency, and agent are completely the buyer's or homeowner's choice.
If the property IS NOT in an A or V flood zone, AND the buyer will be using financing, lenders want third-party verification that the property is not in one of those higher-risk flood zones. In this case a Flood Certificate one-page document is prepared by a licensed surveyor or municipal floodplain management office
stating the subject property's location and zone on the FIRM.
This "Flood Cert" is the lower risk flood zone equivalent of an Elevation Certificate for properties located outside those A or V zones.
Personally, I feel it's a good idea for sellers to make available for buyers either a current Elevation Certificate or a "Flood Cert".
And there we are, a very brief overview of Flood Insurance basics to help you answer buyers' questions.
Identifying flood zones and exposure is an important part of all residential lenders' risk management. It is yet another variable in qualifying the property along with the borrower on a mortgage loan.
Whatever questions your buyers may have, provide them with the basic facts, then have them call a licensed local insurance agent who is experienced with the NFIP.
Well-informed clients make our trips to the closing table so much smoother...



Chris Carter                      NMLS-Licensed Mortgage Advisor 861361
239 898-5455 cell                                   FL Real Estate Sales Associate
    Resort and Second-Home Property Specialist
© 2017 Chris Carter


May 30, 2017


Chris Carter
Mortgage Advisor

FL Real Estate
Sales Associate

239 898-5455 cell
Naples, FL

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Look for an upcoming

edition on how

Flood Insurance

 is handled in

 Condominium buildings.