October 9, 2017
In a previous blog post we discussed some of the FHA loan rules for purchasing homes that may be located in flood zones. According to the FHA loan handbook, homes in certain types of flood zones or Special Flood Hazard Areas are not eligible for FHA mortgages (including but not limited to SFHA Zone A, a Special Flood Zone Area, or Zone V). But other properties may be eligible.
FHA loan rules for homes that are in a flood zone but are still eligible for an FHA mortgage vary depending on the type of property. Let’s examine the rules for each:
Proposed or New Construction Homes
HUD 4000.1 says of these properties:
“If any portion of the dwelling, related Structures or equipment essential to the value of the Property and subject to flood damage is located within an SFHA, the Property is not eligible for FHA mortgage insurance unless the Mortgagee:
-obtains from FEMA a final Letter of Map Amendment (LOMA) or final Letter of Map Revision (LOMR) that removes the Property from the SFHA; or
-obtains a FEMA National Flood Insurance Program Elevation Certificate (FEMA Form 81-31) prepared by a licensed engineer or surveyor. The elevation certificate must document that the lowest floor including the basement of the residential building, and all related improvements/equipment essential to the value of the Property, is built at or above the 100-year flood elevation in compliance with the NFIP criteria, and insurance under the NFIP is obtained.”
As you can see, such properties will require added documentation and work done by a third party. Ask your lender how the expense of this work may affect how much you will need to pay as part of the costs of the FHA mortgage.
Existing Construction
The rules for existing construction are quite simple. According to page 143 of HUD 4000.1, “When any portion of the residential improvements is determined to be located within an SFHA, insurance under the NFIP must be obtained.”
Condo Units
For FHA condo loans in approved projects, FHA mortgage loans instruct the lender, “The Mortgagee must ensure the Homeowners’ Association (HOA) obtains insurance under the NFIP on buildings located within the SFHA. The flood insurance coverage must protect the interest of the Borrowers who hold title to an individual unit, as well as the common areas of the Condominium Project.”
Note that there is a requirement for the condo project to have flood insurance via the HOA that covers not only the interests of the condo project at large, but also the individual owners. That is an important distinction.
Manufactured Housing
HUD 4000.1 has more detailed instructions for manufactured homes, requiring them to be at or above “the 100-year return frequency flood elevation”. But page 144 goes further:
“If any portion of the dwelling, related Structures or equipment essential to the Property Value and subject to flood damage for both new and existing Manufactured Homes are located within an SFHA, the Property is not eligible for FHA mortgage insurance unless the Mortgagee obtains:
-a FEMA issued LOMA or LOMR that removes the Property from the SFHA; or
-a FEMA National Flood Insurance Program (NFIP) Elevation Certificate (FEMA Form 81-31) prepared by a licensed engineer or surveyor stating that the finished grade beneath the Manufactured Home is at or above the 100-year return frequency flood elevation, and insurance under the NFIP is obtained.”
Speak to your loan officer if you aren’t sure how these rules will affect your transaction and/or monthly mortgage payments.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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