October 17, 2017

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Can I Get An FHA Mortgage For A Home In A Flood Zone?

Can I get an FHA loan for a home in a flood zone?

Can I get an FHA loan for a home in a flood zone? With Hurricane Harvey, Hurricane Irma, and many other natural disasters, it’s logical that someone looking for a home anywhere near these disasters would wonder if their house hunt is going to be affected.

FHA loan rules do address flood zones and FHA appraisal requirements for these areas; the answers can be found in HUD 4000.1. The FHA loan rules for this issue can be found under a section covering general property eligibility for an FHA mortgage. On page 143, we learn:

“The Mortgagee must determine if a Property is located in a Special Flood Hazard Area (SFHA) as designated by the Federal Emergency Management Agency (FEMA).”

“The Mortgagee must obtain flood zone determination services, independent of any assessment made by the Appraiser to cover the Life of the Loan Flood Certification.”

Homes located in certain SFHA zones are not eligible for FHA mortgages. In general a home is not approved for an FHA mortgage under the following circumstances:

-a residential building and related improvements to the Property are located within SFHA Zone A, a Special Flood Zone Area, or Zone V, a Coastal Area, and insurance under the National Flood Insurance Program (NFIP) is not available in the community;

-or the improvements are, or are proposed to be, located within a Coastal Barrier Resource System (CBRS).

The requirements for flood insurance for properties located in flood zones that are not SFHA Zone A, Zone V, etc. will vary depending on the nature of the property (proposed construction, existing construction, manufactured homes, etc.) We will discuss those requirements by property type in another blog post.

For homes that do require flood insurance, FHA loan rules in HUD 4000.1 state:

“For Properties located within an SFHA, flood insurance must be maintained for the life of the Mortgage in an amount at least equal to the lesser of:

-the outstanding balance of the Mortgage, less estimated land costs; or
-the maximum amount of the NFIP insurance available with respect to the property improvements.”

Flood zone determinations may have already been made for a specific property, but in the absence of one the lender may require that such a determination be made. The expense of this procedure is billable and can be included in the lender’s net development costs. The flood insurance, when required, will be part of the borrower’s monthly mortgage obligation.

If you aren’t sure how these rules apply to your transaction, or whether they DO apply, talk to a loan officer about your loan application.

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