September 25, 2015
With the publication of HUD 4000.1, the new Single Family Home Loan handbook, there have been plenty of changes, alterations, restatements of policy and other issues borrowers and lenders alike should be aware of.
We’re examining some of the most frequently asked questions about policies found in HUD 4000.1 to help borrowers and lenders know what current policy, as found in the new handbook, is on specific issues.
One of those issues has to do with flood insurance and flood zone determination. FHA loan rules have standards for new construction and existing construction homes; let’s examine what the rules in HUD 4000.1 say about flood insurance for existing construction.
According to the FHA official site, rules for flood insurance include the following requirement of the lender:
“The lender must determine if a property is located in a Special Flood Hazard Area (SFHA) as designated by the Federal Emergency Management Agency (FEMA). The lender must obtain flood zone determination services, independent of any assessment made by the appraiser to cover the Life of the Loan Flood Certification. The Life of Loan Flood Certification must be obtained for all properties.”
Flood zone determination is the first step. FHA rules add:
“A property is not eligible for FHA insurance if:
–a residential building and related improvements to the property are located within SFHA Zone A, a Special Flood Zone Area , or Zone V, a Coastal Area, and insurance under the National Flood Insurance Program (NFIP) is not available in the community;
or
–the improvements are, or are proposed to be, located within a Coastal Barrier Resource System (CBRS).”
So having flood insurance is a moot point in those cases. But there’s more:
“When any portion of the residential improvements is determined to be located within an SFHA, flood insurance must be maintained for the life of the mortgage in an amount at least equal to the lesser of:
–the appraisers estimated replacement cost, less the appraisers estimated site value;
–the outstanding balance of the mortgage; or
–the maximum amount of the NFIP insurance available with respect to the property improvements”
We will cover similar requirements for new construction properties in another blog post.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It’s designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.
It’s simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today at http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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