Why is it important to purchase flood insurance and do I really need it?
You may be required to purchase flood insurance. Homeowners insurance policies do not cover
flooding. If the house is in a designated Special Flood Hazard Area (SFHA-high risk), then federally
regulated or insured lenders must, BY LAW, require you to buy flood insurance as a condition for the loan. It is not just high-risk areas that are flooded. On average 25-30 percent of all flood insurance claims come from medium or low-risk flood areas
What is a Special Flood Hazard Area (SFHA)?
These are areas with the highest risk for flooding, shown on the Flood Insurance Rate Maps as Zones A or V. Over a 30-year mortgage, homes in these zones have a 26 percent chance of being flooded.
How will I know if my house or building is in a SFHA and how much will flood insurance cost?
We will provide a client with a Floodplain Elevation Certificate by completing a Floodplain Survey. The certificate will tell what flood zone your house is located and if your basement, first floor, and house corners are below the base flood elevation (BFE) for flooding that is determined by FEMA. The BFE is determined by the worst storm in a 100 year time frame.
Flood insurance premiums vary, depending upon the date the building was constructed and the degree of risk for flooding.
Is the property a candidate for a FEMA Letter of Map Change (LOMC)?
Perhaps a property owner provides the lender with documentation, such as and Elevation Certificate or a letter from a community official, to challenge the flood zone designation on the basis that the property should not be mapped in the SFHA since it is well above FEMA’s established BFE. The lender will typically not accept such documentation as proof that the property is not in the SFHA, since the FIRM (Flood Insurance Rate Map) may actually reflect that the property is part of the SFHA. However, FEMA recognizes that due to limitation in scale, the FIRM cannot reflect every rise in terrain. Thus, the LOMC processes provide official determination from FEMA that a specific building is not to be included in the SFHA.
Lenders and their regulators often accept an LOMC issued by FEMA as proof that the mandatory
purchase requirements of the law do not apply, though the lender retains the right to require flood
insurance in such instances as part of their own risk management strategy. During loan origination, the lender is required to make sure that if there is an LOMC for that property address, it is noted on their SFHDF. Often, but not always, if there is an LOMC, a lender will not require coverage, but the FEMA letter must still be coordinated with the lender. There are two types of LOMC’s available:
The FEMA Letter of Map Amendment (LOMA), which applies when a borrower can provide an Elevation Certificate to show that the building’s natural lowest grade in immediate contact with the building is at or above the BFE. The LOMA suits a situation where the building is within the boundaries of an SFHA, but is on natural high ground.
The Letter of Map Revision based on Fill (LOMR-F) applies when the community has permitted the use of fill to raise the ground beneath the building and requires the community’s assistance to apply for a LOMR-F. A successful LOMR-F releases the lender from the obligation to require the purchase of flood insurance and identifies the building in a low to moderate flood risk area.