September 16, 2022
In 2017, we wrote an article about the importance of knowing FHA loan rules for loan approval in certain regions of the country subject to flooding. Is it possible to purchase a home with an FHA mortgage in a flood zone?
The FHA Loan Single-Family Lender’s Handbook, HUD 4000.1, says that homes in certain types of flood zones or Special Flood Hazard Areas or SFHA are not eligible for FHA mortgages.
These areas include, but may not be limited to SFHA Zone A, a Special Flood Zone Area, or Zone V. We reported that in 2017 and we wanted to follow up to see what the rules say today.
Proposed or New Construction Homes
HUD 4000.1 says that in cases where “any portion” of a home is in an SFHA, the proposed construction or new construction home is not eligible for FHA mortgage insurance. Exceptions may be possible when the lender:
- Gets a FEMA Letter of Map Amendment (LOMA) or final Letter of Map Revision (LOMR) that removes the Property from the SFHA; or
- Receives a FEMA National Flood Insurance Program Elevation Certificate (FEMA Form 81-31) prepared by a licensed engineer or surveyor. HUD 4000.1 says the elevation certificate must document “that the lowest floor including the basement of the residential building, and all related improvements/equipment essential to the value of the Property, is built at or above the 100-year flood elevation in compliance with the NFIP criteria, and insurance under the NFIP is obtained.”
FHA loan rules for existing construction homes located in a flood zone are short and easy to understand. According to HUD 4000.1, “When any portion of the residential improvements is determined to be located within an SFHA, insurance under the NFIP must be obtained.” NFIP stands for the National Flood Insurance Program.
There are flood zone rules for condo units, too. In HUD 4000.1, instructions for the lender include a requirement to, “…ensure the Homeowners’ Association (HOA) obtains insurance under the NFIP on buildings located within the SFHA.
The flood insurance coverage must protect the interest” of the individual borrowers as well as the condo project overall.
HUD 4000.1 includes flood zone rules for manufactured homes. These properties must be located at or above “the 100-year return frequency flood elevation”. Otherwise, FHA loan rules are clear, if any part of the home is within an SFHA, it cannot be approved for an FHA loan.
Exceptions are possible when the home is no longer considered in an SFHA, or a licensed engineer or surveyor certifies “that the finished grade beneath the Manufactured Home is at or above the 100-year return frequency flood elevation, and insurance under the NFIP is obtained.”
If you aren’t sure how these rules may apply to you, have a conversation with a loan officer or a real estate agent.