Today we are discussing how the recent FDIC flood insurance ruling will impact the government loan process and people who have a government loan.
First we need to discuss what kind of loan is considered a government loan. These loan types are going to generally be FHA, VA, and USDA loans.
Up until July 1st 2019 the only flood insurance option for people with government loan has been the National Flood Insurance Program. It has been a long term battle getting banks to accept private flood because it follows different guidelines from the National Flood Insurance Program. One reason is the National Flood Insurance Program is regulated by the government are rates are the same. However as NFIP has been hit one disaster after another these rates have skyrocketed. Some property owners have seen rates go from $3500 to $15,000 over a course of 10 years.
As you can see the need for a much more affordable option flood insurance has been needed for a while. However there have been a few concerns the ability for claims to be paid out, finding a long term stable option, and getting private carriers to follow the same guidelines.
One of the struggles of affordability have been how each company determines rates and risk. We can all agree that NFIP has needed to update its mapping accuracy for a long time. However as private companies have come along they have started to use different technologies that are helping them more accurately determine risks.
So as the deadline approaches how is this going to impact the government loan process? Well NFIP has a payment guideline of 30 days if a mortgage company is making a payment at closing. However many private carriers require a property owner to make the first payment up front. This could cause some buyers to come up with more money before closing eliminating some of the 0% downpayment loans.
Something else that could have a huge impact is how flood insurance impacts a persons debt to income ratios. This is how many banks determine if someone will qualify for a loan. So lets say you have a $2000 NFIP quote and a $600 private quote that could be more than a $100 a month on a mortgage payment. So this could help more buyers get into a house they want or get more house for the money.
When it comes to coverages we are talking about two different worlds. NFIP maxes out at $250,000 on building while private flood insurance does not. Private flood insurance provides temporary living expenses while NFIP does not. Lastly private offers replacement cost on contents while NFIP doesn't.
So lets recap a little bit about what impacts the FDIC ruling on flood insurance will have. It will give a much more affordable flood insurance option in many situations, a policy that offers more coverage, and could require buyers to pay up front for flood insurance policies.