Flood insurance can be brutal.
We recently had a transaction in Oakland that required our buyer to pay almost $8,000 up front (prior to close) so we could obtain the required evidence of flood insurance.
Similarly, we had a small transaction in a Contra Costa County suburb that required a $5,300 upfront payment.
In both cases, the buyers were caught completely off guard – by both the amount and the requirement to pay upfront.
Why Flood Insurance Is Required
Every lender is required to screen every property for flood zone status.
If a property is in a designated flood zone, buyers must purchase flood insurance. The zone requiring insurance is typically one where there is a one percent chance of flooding (often referred to as a “100-year flood zone”).
Premiums can vary significantly depending on a property’s elevation (relative to the flood plain) and its exact flood zone designation (e.g., A, D, V, X, etc.).
Key Facts About Flood Insurance
1. Premium Amounts
We see premiums vary from as little as $40 per month to well over $500 per month, but large premiums are not unusual.
2. Insurance Providers
Flood insurance can be obtained through FEMA (the government) directly or through private insurers such as:
– USAA
– The Hartford
– CSAA
– NCIP
– Palomar
These are all companies we have used for flood insurance.
3. Full Payments Up Front
Flood insurance providers will not provide the required “evidence of insurance” until they receive an entire year’s premium in full.
As a result, lenders cannot even order loan documents until borrowers have made this upfront payment.
4. Flood Zones Are Not Set in Stone
We have seen buyers challenge their flood zone designations and win.
In one case, for example, a buyer hired a surveyor to prove that only the property’s barn was in the flood zone while the dwelling itself was not; this saved the borrower thousands in annual premiums.
Helpful Resources
You can use this FEMA Flood Map link to see if a property is in a flood zone.
You can also find more detailed information about flood insurance here.
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