How do Flood Zone Maps affect USDA Mortgage Eligibility?

How do flood zone maps affect USDA mortgage eligibility? Can you buy a home that is in a flood zone with a USDA mortgage? These are great questions, because the topic of flood zones and USDA eligibility can create confusion during the process!

We commonly deal with situations where USDA eligible properties are located within a FEMA flood zone.  In today’s video, I will explain how flood zone maps affect USDA mortgage eligibility, if additional structures require flood insurance, and the required flood insurance coverage amounts.

Now, if you have not yet done so, please download our FREE USDA Blueprint for Success. This free guide is designed to walk you through the USDA process step-by-step and is a great educational tool for the real estate community.

How do Flood Zone Maps affect USDA Mortgage Eligibility?

FEMA Flood Maps

Flood zone maps are maintained by FEMA, used to show how likely it is for an area to flood. They are also available to help communities understand how to reduce their risk.  FEMA states the following regarding flood maps:

“Flood maps help mortgage lenders determine insurance requirements and help communities develop strategies for reducing their risk. The mapping process helps you and your community understand your flood risk and make more informed decisions about how to reduce or manage your risk.”

USDA flood zone requirements for properties located in a Special Flood Hazard Area (SFHA) are different for existing dwellings versus new or proposed construction properties.

Today, I will only be discussing USDA flood zone requirements for existing dwellings. If you do have any USDA new construction questions, please call my team so we can assist!

Existing dwellings

Once it has been determined that property is located in a Special Flood Hazard Area (“SFHA”) in accordance with the National Flood Insurance Reform Act of 1994, USDA guidelines state the following:

“Existing dwellings located in flood zones are eligible under the SFHGLP if flood insurance, through FEMA’s National Flood Insurance Program (NFIP), is available for the community and flood insurance whether NFIP, “write your own,” or private flood insurance, as approved by the lender, is purchased by the borrower.”

Additionally, guidelines require that:

“Insurance must be obtained as a condition of closing and maintained for the life of the loan for existing residential structures when any portion of the structure is determined to be located in a SFHA, including decks and carports, etc.”

Do additional structures on the property also require flood insurance?

There is good news for this question! The Homeowner Flood Insurance Affordability Act (HFIAA) of 2014 states:

“flood insurance is not required for any additional structures that are located on the property but are detached from the primary residential structure and do not serve as a residence, such as sheds, garages, or other ancillary structures.”

USDA Flood Insurance Coverage Requirements

USDA Minimum Required Flood Insurance Coverage Amount

USDA Rural Development guidelines require the applicant to obtain flood insurance when the property is located in a Special Flood Hazard Area (“SFHA”) as determined by the FEMA flood zone maps.  USDA eligibility guidelines require minimum flood insurance coverage as follows:

“Flood insurance must cover the lesser of the outstanding principal balance of the loan or the maximum amount of coverage allowed under FEMA’s National Flood Insurance Program (NFIP).”

USDA Maximum Flood Insurance Deductible

USDA guidelines also provide for the following maximum flood insurance deductible amounts:

“Unless a higher amount is allowed by state or federal law (which includes FEMA policies), the maximum deductible clause for a flood insurance policy should not exceed the greater of $1,000, or one percent of the face amount of the policy, or the minimum deductible offered by the borrower’s chosen insurance carrier. Existing dwellings for the SFHGLP are eligible if flood insurance is available.”

(SFHGLP stands for the Single Family Housing Guaranteed Loan Program.)

USDA Eligibility – Flood Insurance Summary

Today’s topic is not an exhaustive list of USDA Rural Development flood zone requirements.  However, it does help explain how the FEMA flood zone maps affect USDA eligibility under the Rural Development Single Family Housing Guaranteed Program.

If you are trying to qualify for a USDA mortgage with a property in a flood zone do not let the details overwhelm you! It is important to remember the basics and understand that that USDA eligibility for properties requiring flood insurance has greatly improved from previous years.

Additionally, understand that while it is possible to qualify for a USDA mortgage with a property located in a flood zone:

• certain flood insurance coverage requirements will apply, and
• certain flood insurance deductibles will be required.

What are the benefits of working with a USDA approved lender?

The USDA loan program can be extremely powerful when you are working with a USDA approved lender that understands the program and has the experience to maximize its potential.

As a USDA approved lender, we are here to help you understand how FEMA flood zone maps affect USDA eligibility.  This includes explaining USDA flood insurance requirements and walking you through the USDA eligibility process step-by-step.

Just call or email to discuss your scenario and let us show you the “Metroplex” difference.

800-806-9836 Ext. 280
SeanS@MPLX.org

I want everyone to make it a great day, and look forward to seeing you right here for the next tip of the week!

P.S. – You can download our “USDA Blueprint for Success” by CLICKING HERE.