The Flood Insurance Guru Podcast Episode 20: Free Flood Insurance for FHA Loans

In today's episode, we'll talk about free flood insurance when it comes to the Federal Housing Administration (FHA) loans, and answer your common questions on how does it work? Is it really available?

How Does it Work?

First, we need to figure out how you get to this point.

It's important to note that in the National Flood Insurance Program (NFIP), you got something that's called a flood insurance policy transfer or policy assumptions. This is simply when a flood policy is passed from one homeowner to another homeowner. With this in mind, you also know that flood insurance from the federal government is that everything has to be paid upfront: this includes premium rate and all those other fees.

So, let's say that this current property owner sent payment for the whole year upfront for their properties' for the policy two months ago. Then that means that the policy transfer and policy assumption will have the buyer and the new property owner to get flood insurance for the next ten months without paying for anything. Now, the catch with this is the previous homeowner should agree to simply walk away from this money that was made as payment for the rate.

This is how you can get free flood insurance with the government FHA loan.

Other Benefits of Policy Transfer
and Policy Assumption

We all know that at the time of writing, FHA loans pushed back on private flood insurance. This means that you can only get your policy through the NFIP. This means that the policy can be transferred easily since it's under the same federal program.

Another benefit is what we call continuous coverage that the NFIP will give you a pretty high credit for this. What this means is that you're not starting from a new policy and only continuing the policy from the previous owner to the next. Continuous coverage is NFIP's way of rewarding their loyal customers and policyholders by providing discounts for owners.

Continuous coverage also secures the flood zone of the property. Let's say that you're selling a house that is currently in a low-risk flood zone, but in the next two weeks, it will be moved to a high-risk flood zone. If you were to do a policy transfer or policy assumption, the property gets to keep the low-risk flood zone even after the flood map is updated. Basically, the policy is grandfathered to the buyer of the house.

It's important to remember that if this policy gets cancelled or lapses when it comes to its payments, these benefits go away. This can mean an up to $500 to $600 difference for that low-risk area or preferred zone policy and $2000 a year for the high-risk area.

These are just some of the benefits of doing a policy transfer and how it can get you free flood insurance while doing a loan with the FHA for a given amount of time. 

So if you have questions about continuous coverage, what the discount is, or if you qualify please visit our website. You can also subscribe to our YouTube Channel for your daily dose of flood education videos. Remember we have an educational background in flood mitigation so we can help you understand your flood insurance, risks, and mitigating your property long term.