The flood insurance market is progressively changing as we move into another year. Although a flood policy is a separate insurance policy from your homeowner's insurance, this can still have a lot of impact on your buying power with your home.
In this blog, let's talk about how the recent changes in the flood insurance market can positively affect your buying power and what you can do to really improve this and make the most out of your flood insurance policy.
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Buying a Home & Purchase of Flood Insurance
First, let's talk about my experience in buying a home and flood insurance.
About 10 years ago, sometime in 2012, I was buying a new property to call our new home. However, this new house is in a flood zone and I only had two weeks before closing.
Considering this, the insurance agent told me that my flood insurance premium rates can go up to $3,000. This became a hurdle to us in getting this house. Even if I did, I'm going to pay an additional $250 per month for the house which is a lot of money.
But I knew that this wasn't particularly right since there were updates to flood maps in the area, the house was in compliance, and the policy can be grandfathered. This helped me turn that $3,000 cost of flood insurance premium into around $300.
Impacts to Buying Power
Generally, this type of situation can also impact your buying power for your home. If you have a federally-backed loan, you can only go through federal flood insurance which can mean that you might get higher flood insurance rates.
It would really be difficult to close a deal when one of the catches is that the new homeowner will have to pay more because of flood insurance rates. This can easily discourage people from buying your house and hurt those who are selling theirs.
However, this may change in a couple of weeks due to a huge paradigm shift in flood insurance options.
What is Changing with Flood Insurance
Although a lot of these things went away with the recent update of the National Flood Insurance Program (NFIP) and Risk Rating 2.0 such as no longer basing flood insurance rates on flood zones and grandfathering flood policies, flood insurance costs can still have a lot of impact on your buying power.
This is where the upcoming update comes into a beneficial play for property owners who have a Federal Housing Administration (FHA), Veteran's Association (VA), or United States Department of Agriculture (USDA) loans.
The Department of Housing and Urban Development (HUD) proposed that homeowners with an FHA, VA, or USDA loan should have the option to get flood insurance from private insurers as well. This drastically changes consumer choice within NFIP-participating communities as people will have more options to go to protect themselves from flood damage.
Simply put, even if you have an FHA loan, you can get private flood insurance starting December 21st, 2022.
Buying Power and Flood Policies
So, how does this impact your buying power?
Let's look at this before this proposal happened. if you have a flood policy with the Federal Emergency Management Agency (FEMA) because that's the only one accepted when you have an FHA loan, your buying power is negatively getting impacted by this. Potential buyers will have to face higher flood premiums which can add up to their monthly payment.
Additionally, the National Flood Insurance Program has certain coverage limits when it comes to their flood policies. This is where that maximum of $250,000 for building coverage and $100,000 on personal property coverage kicks in. For some buyers, this may not be the best fit for their budget and needs when it comes to flood insurance.
Again, this can easily discourage potential buyers especially if there are similar homes that have cheaper flood insurance costs because they have a private flood insurance policy.
So, this new proposal of allowing homeowners with an FHA loan to get flood insurance from private insurers not only help expand the options of property owners but also increase their buying power.
Nowadays, flood insurance is a must because flood damage can happen anywhere. As we always say, all properties should have coverage from flooding since floods can happen anywhere even in places that aren't considered high-risk areas for flooding.
Getting the right flood coverage with your home can really help you reduce the impacts of flood risk and bounce back from a natural disaster like this.
As we can see in this blog, this can also help you financially as getting the right flood insurance policy from the right insurance company can really impact your buying power.
So if you have additional questions that are related to flooding and flood insurance, make sure to visit our Flood Learning Center where we try to answer all your questions. Click below to start your flood learning with us!
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