Understand Why and When Flood Insurance is Required on a Purchase

When is flood insurance required and how do I find out if I need it?
When is flood insurance required and how do I find out if I need it?

 Flood Insurance Requirements

It is a given that every coastal Realtor, insurance agent, & mortgage lender should be familiar with flood insurance but there are also plenty of non-coastal properties in flood hazard areas because of being located near a river, lake, or in a low lying area where water can rise.  Below we asked a local flood insurance expert some of the most popular questions we hear from buyers and realtors.

Every hurricane season that comes around, the topic of flood insurance spikes and this year was no different with the heavy rains the east coast received during the near miss of hurricane Joaquin.  So anyone in a low lying area or beach home especially were on pins and needles.  BUT, did you know that 20% of all flood insurance claims come from moderate to low risk areas?  Check out the following questions and answers related to flood insurance, surveys, and elevation certificates.

What is a good way to determine up-front if a property is in a flood hazard area prior to a lender pulling it during the mortgage process?

In order to officially determine if a property is in a flood zone, Realtors, loan officers, insurance agents will need to pull a flood certification.  When we are involved as the mortgage lender, we will request a flood certification soon after receiving the purchase contract.  The cost per request is roughly $8-$15 depending on the company.  Insurance agents may provide this info at no cost though.   One company to use is https://www.floodcert.com/.  Typically the turnaround time is instant.  Some properties that are borderline may take 24-48 hours for CoreLogic to turn around.

What if only part of the property is in a flood hazard area?

Parts of the property CAN be in flood zone but the actual structure itself may not be.  Typically the flood cert will indicate this but sometimes the structure may be so close to the line that additional information may be required such as a survey.  Some mortgage banks may still require that the property have adequate flood insurance even if the structure is not in a flood zone.  Our experience suggests this is typically not the case for us if the dwelling is not in the flood area.  Most of the time, the banks will not require the owner to purchase flood insurance unless the primary dwelling is in the flood zone.  The rating for the structure will be rated as not being in a high risk flood zone and is typically affordable. 

What if there is a dispute between parties about the structure being in a flood hazard area?  What steps would need to take place in a dispute like this?

 At times property owners and buyers may dispute that there property is in a high risk flood zone which banks will require flood insurance.  In order to dispute the mapping, the owner/buyer will need to have an updated survey completed by a licensed surveyor.  The insurance agent will forward the updated info to FEMA for a resolution.

ALL properties are technically in a flood zone.  Preferred risk (less than 1% probability of flooding) or Zone X, is commonly referred to as being out of a flood zone.  Banks do not require flood insurance in these zones.  Rates in a preferred zone for $250k are $400-450 per year depending on the deductible amount.  $250,000 is the limit for dwelling coverage through FEMA/NFIP. 

Primary residences still enjoy a subsidized rate and primary to primary property transactions will allow for the existing policy to be transferred/grandfathered.  IF the property is going to be secondary/investment property, the new owner will have to re-qualify and absorb the entire new rate (unsubsidized by the feds).  There is a huge rate difference between primary residences and second homes as primary residences still have federally subsidized rates.


What is the purpose of a flood elevation certificate and will you require or recommend one?

If the property is determined, via the flood certificate, to be in a flood hazard area.  An elevation certificate is required to properly rate the risk if the construction of the house is post Jan 1, 1975.  The elevation certificate determines if the building in question is in compliance with the community floodplain management.  The elevation certificate, provided by a professional surveyor, will determine if the house is properly vented to mitigate flood risk if below the base flood elevation.  It will also determine if all finished property is above base flood elevation for the area.  In order to qualify for the most beneficial rate, the structure will need to be in full compliance.

Does a house on stilts help out in the price of flood insurance when the property is in a flood hazard area?


Frequently yes.  Typically a house on stilts was constructed in a way to comply with community floodplain management well above the base flood elevation.  All machinery (hot water heater, HVAC, etc) will need to be above base flood to qualify for the most beneficial rates.  The buyer or seller will still need to secure an elevation certificate and work with an insurance professional to determine the final flood rate.

Tips for buyers and sellers of homes in or near a flood hazard area:

Sellers and listing agents, if you know that you are in or near a flood hazard area, have a survey showing exactly where the house is located or an elevation certificate which could both provide a buyer more confidence in your home rather than possibly fearing much worse.  Plus make sure that you are disclosing this in your purchase contract and property addendum.

Buyers and buyer’s agents, always ask the seller for a copy of an existing survey or elevation certificate as it could save you the money from ordering a new one.  If you think that the property you are considering is in a flood hazard area, mention it to us and start your conversation with your insurance agent early so you don’t have delays plus if there is an issue, you don’t want to find out at the end!

Did you know?  Purchases that had an appraisal performed prior to an area being declared a federal disaster area must have the appraiser re-inspect.  This is to certify that the home is in the same condition with no apparent damage from the storm.  There are some areas that didn’t even get much rain but because the government declared it a disaster area, the inspection should be required.  So this would be an extra cost for the buyer of usually $75 – $150 depending on the appraiser.

The above answers were provided by Franklin Rouse, State Farm Insurance and he is an expert at flood insurance in coastal NC.  Franklin’s office is located at 1107 New Point Blvd, # 5, Leland, NC 28451, 910-371-5446.  www.FranklinRouse.com

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Written By: Russell Smith