Is Your Borrower's Flood Insurance Ready for Closing Day?

Who is this tool for?

Loan officers, processors and their teams working purchase and refinance files in California and across the country. Flood Insurance Guru is licensed in all 50 states, so the checklist works wherever your borrower is buying.

Does the flood zone decide if flood insurance is required?

Yes. The flood zone determination shows whether the building is in a Special Flood Hazard Area. If it is, and the loan is federally backed or made by a regulated lender, flood insurance is required. The zone decides whether coverage is required. It never sets the price. Outside a high risk zone, flood is not federally required, though your lender or investor can still require it.

How much coverage does the lender need?

The usual federal minimum for building coverage is the lowest of three numbers: the loan amount, the NFIP maximum of $250,000 for a 1 to 4 family home, or the building's insurable value. A lender can ask for more. If the borrower takes over the seller's policy and the coverage is short, increase it before closing. Increasing the coverage will increase the price of the policy.

Is there a 30-day wait on a new flood policy?

The NFIP 30-day waiting period does not apply when the policy is bought at or for a closing, as long as it involves a loan transaction. Private flood waiting periods vary by insurer, so ask before you count on a start date.

Will the lender accept private flood insurance?

Regulated lenders must accept a private policy that meets the federal definition of private flood insurance. The easy check is the compliance statement on the policy. Many lenders also accept other private policies at their discretion. For jumbo, portfolio, private or hard money loans, the lender sets its own rules, so ask in writing. Some private policies include additional living expense or loss of use coverage. NFIP policies do not.

What should the binder show?

The borrower's name, the property address, the mortgagee clause with the loan number, the building coverage amount, and an effective date on or before closing. Get it out at least 7 business days before closing so underwriting can review it and nothing is held up.

FAQs

Is flood insurance required for my borrower's loan?

It is required when the building is in a Special Flood Hazard Area (a zone starting with A or V) and the loan is federally backed or made by a regulated lender. The flood zone determination tells you. The zone decides whether coverage is required. It does not set the price.

How much flood coverage does the lender need?

Under federal rules the minimum building coverage is usually the lowest of the loan amount, the NFIP maximum of $250,000 for a 1 to 4 family home, or the building's insurable value. Your lender can ask for more, so always check with them.

Is there a 30-day waiting period if flood is bought for a closing?

No. The NFIP 30-day waiting period does not apply when the policy is bought at or for a closing, as long as it involves a loan transaction. Private flood waiting periods vary by insurer, so ask the insurer.

Will the lender accept a private flood policy?

Regulated lenders must accept a private policy that meets the federal definition of private flood insurance. Look for the compliance statement on the policy. For jumbo, portfolio, private or hard money loans, ask the lender in writing.

Can my borrower take over the seller's flood policy?

Yes, an NFIP policy with building coverage can be assigned to the buyer. If the coverage is less than the lender requires, increase it before closing or the lender will not accept it.

When should the flood binder be in the file?

Get the binder out at least 7 business days before closing (business days skip weekends and federal holidays). That gives underwriting time to review it and fix the name, address, mortgagee clause or coverage amount so nothing is held up.

Is this a quote?

No. It is a free educational check. A licensed agent can review your borrower's file and give a quote.

This is an educational estimate based on the details you entered and public data. It is not an insurance quote, an offer of coverage, or a guarantee. Coverage, availability and pricing depend on the insurer, underwriting and your state. Always review your actual policy and speak with a licensed agent before making coverage decisions. Always check with your lender (or the contracting party) for the exact requirements.