You’ve recently had an offer accepted on a home in a great area, but there’s one problem: You have to get flood insurance in order to get your mortgage. While this isn’t a deal-breaker, it may leave you wondering exactly how much insurance you need to have on the property.
The first thing, is that this discovery should have been done prior to submitting an offer. As a buyer you wan tot know all your carrying costs before you place an offer because you will be spending your time (the most valuable asset) and your money on the steps necessary to purchase the property. Before you start housing hunting, if your want to live near water, call your insurance agent to get a ball park of current costs. If you need some referrals I have some wonderful insurance agents. Just like real estate agents, not all are equal.
You want to protect your home in Essex County, but you also don’t want to pay for more coverage than you actually need. How do you really know how much flood insurance you need?
WHO NEEDS FLOOD INSURANCE?
Depending on the conditions under which you buy your home, you may be required to carry flood insurance.
If you have a federally backed mortgage, such as an FHA loan, and your home is located in a high-risk flood zone, you must purchase flood insurance for your home.
Many mortgage lenders also require homeowners to carry flood insurance if they’re located in a flood zone.
For homeowners who don’t have a mortgage, it is advised to carry flood insurance if you live in a high-risk flood area.
HOW WILL I KNOW IF I NEED FLOOD INSURANCE?
For most homeowners, you will be told that the home needs flood insurance when you receive the disclosures however in the State of Massachusetts it is buyer beware. As part of our buyer services we help you uncover all the details about the house as they pertain to government regulations. In terms of Flood Zone, FEMA is the source. Search the address address on the FEMA website and you will be given the Flood Zone.
Now the research begins. Here is an explanation of How to Read the Fema Maps and what the flood zone means. This handout is directly from the Federal Government as of 2020, so check to see if it is still current with FEMA
Occasionally, there will be no information on the disclosures or from the real estate agent about prior flood damage, but it is discovered during the inspection process. Town Hall is also a good place to go before the home Inspection process, to pull the files on the property and speak with the government officials.
Again, needing flood insurance isn’t necessarily a deal-breaker, nor does it mean that the home is likely to flood again; however, it can be expensive to carry flood insurance on a home, so knowing this information may change your mind about that once-perfect home in Essex County.
WHY IS FLOOD INSURANCE REQUIRED?
Flood damage can be devastating for a property.
Depending on the extent of the damage, you could require some flood remediation services and minor property replacement claims for lesser flooding, or your entire home could need to be rebuilt in the case of a serious flood.
Because your lender has a financial stake in your mortgage – whether it’s backed by the federal government or a private company – protecting their investment is important. If your home is located in an area where you could potentially have flood damage, that means you may have to put in an expensive claim at some point in your ownership.
To protect themselves from losing money on your home loan, your lender requires flood insurance to help offset the cost of any claims that may arise.
HOW MUCH FLOOD INSURANCE DO I NEED ON MY HOME IN Essex County?
The amount of flood insurance is going to depend on whether or not you have a mortgage on your home.
If you aren’t borrowing money to pay for your home, either because you were able to pay for it up front or you’ve paid off your mortgage, it is recommended that you carry flood insurance equal to the value of your home and the possessions inside it.
Flood insurance isn’t required in this situation, but it is highly recommended for your financial protection.
For those who do have a mortgage, whether federally backed or private, you must have flood insurance equal to the property development cost or the coverage maximum, whichever is lower. The cost of property development includes rebuilding your home if it’s destroyed. Your insurance company’s underwriter will determine this amount based on what materials your home is made of, as well as the cost of goods and services in Essex County.
The maximums depend on if you purchase federal or private flood insurance. Federal insurance is generally limited to $250,000 for the structure and $100,000 for personal property, while private carrier limits can be much higher.
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