Should Your Borrower Take Over the Seller's NFIP Flood Policy?

Why check for an existing NFIP policy on every file?

Many homes in and near flood zones already carry an NFIP policy. If nobody asks, the borrower may buy a new policy without knowing there was another option. One question to the seller or listing agent, and a copy of the declarations page, tells you what is there.

What does the borrower gain by assuming the policy?

The borrower may keep the seller's glide path, where the rate rises slowly each year toward the full rate. The glide path benefit is typically strongest for a policy in force more than 3 years, but a new NFIP policy will not cost less than assuming the seller's NFIP policy, whatever its age. Grandfathering was replaced by the glide path. For most policies, the yearly increase is capped at 18 percent, and the cap may be recalculated using the borrower's details. The policy is already paid through its term, so the borrower may not need to pay for a new full year upfront at closing. Coverage keeps going on the day ownership changes.

What about the seller?

The seller typically does not get a refund when the policy is assigned, because the policy stays in force. Settle the unused premium at closing.

What if the coverage is too low?

The lender needs building coverage of at least the lowest of the loan amount, the NFIP maximum, or the insurable value. If the coverage is short, the lender will kick the policy back. Raise the building coverage to the NFIP maximum of $250,000 for residential (1 to 4 family) properties before the transfer and before closing. Increasing the coverage will increase the price of the policy.

When does the borrower need a new policy?

When there is no policy to assume or the policy covers only contents. 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.

What about private flood policies?

Private flood transfer rules depend on the insurer. Ask the insurer in writing and compare it with a new policy, since it depends on the insurer. Some private policies include additional living expense or loss of use coverage. NFIP policies do not.

Does the flood zone matter?

The flood zone decides whether a lender requires flood insurance. It does not set the price. Check it with our free Flood Zone Check, get your file ready with the Closing Day Flood Readiness Check, or see the Flood Policy Transfer Check. Browse all flood insurance tools.

FAQs

Can a buyer take over the seller's NFIP flood policy?

Yes. NFIP policies with building coverage are transferable to a new owner. The seller signs the assignment on or before closing, and the buyer has up to 30 days after closing to send it to the insurer. A contents only policy cannot be assigned.

Why should a loan officer check for an existing NFIP policy?

Because taking over the seller's policy may let your borrower keep the seller's glide path instead of starting a new policy at a new full risk rate, and may mean no new full year payment upfront at closing.

What if the seller's coverage is less than the loan?

The lender will kick the policy back. Raise the building coverage to the NFIP maximum of $250,000 for residential (1 to 4 family) properties before the transfer and before closing.

Does the seller get a refund?

Typically no. An assigned policy stays in force, so settle the unused premium at closing.

Is there a 30-day wait if a new policy is needed instead?

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.

Can a private flood policy be assumed?

It depends on the insurer. Ask the insurer in writing and compare it with a new policy, since it depends on the insurer. Some private policies include loss of use coverage. NFIP policies do not.

Will an assumption cost less?

A new NFIP policy will not cost less than assuming the seller's NFIP policy. We can't guarantee price.

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.