FHA Flood Insurance Changes coming December 2022!

Housing and Urban Development announces changes to the Federal Housing Administration’s requirements surrounding flood insurance, allowing consumers to obtain qualifying policies through private insurers!

Floods can occur anywhere, but FEMA (Federal Emergency Management Agency) indicates some areas are more prone to flooding. They label these zones based on the risk associated with flooding like past floods, proximity to coasts and waterways, elevation, and groundwater risks. Lenders use the flood insurance zones to determine if the property too high risk to lend or if  flood insurance is required . Properties located in higher risk flood zone that are secured by mortgages require flood insurance, regardless of the loan type. More Info on Flood Zones here!

Flood insurance is an insurance policy separate from home, also known as Hazard insurance,  that protects the home from loss (often excluding flood and wind). The purpose of flood insurance is to protect your home, business, and/or contents against physical damage created by water of various kinds. FEMA indicates that only 1 inch of water can cause $25,000- in damages, which is why lenders require this type of insurance when a property is in a FEMA flood zone.

Previously, homes requiring flood insurance under the Federal Housing Authority (FHA) loan program needed a policy obtained right from FEMA’s National Flood Insurance Program (NFIP). This policy is managed by FEMA and offered directly to the public by using more than 50 companies. Insurance agents have been able to quote policy options under this program, but only that program for FHA.

Effective December 21, 2022, that will change. Not only will the National Flood Insurance Program be available to those looking to obtain flood insurance, but insurance agents will be able to shop policies with private insurance companies as well.

Often times, this shopping will lead to savings not found under the National Flood Insurance Program. Other times, more coverage or deductible  options may be presented. Sometimes, the National Flood Insurance Program will present the best option. Whether a policy is provided from a private flood insurance or National Flood Insurance Program, the policy and company will still have to meet FHA’s requirements..

This change puts the choice is back in the hands of home buyers and homeowners, as it is given with Conventional loan options.

The full HUD announcement can be found Here.

FEMA Flood Map from FEMA.gov