FHA Financing Requirements in Flood Zones

In 2010, the FHA changed the rules regarding flood zone determination for mortgages. Before then, the FHA "strongly encouraged" future home owners to determine if the property was in a flood zone. After the rule change, it became mandatory. Lenders must obtain flood zone determination services for the entire period of the loan, often 30 years, for any properties that serve as collateral for mortgages with FHA insurance. These services are separate from the work of a home appraiser.

The FHA does not provide mortgage insurance for houses on land designated under the Coastal Barrier Resources Act. This includes coastal barriers along the Great Lakes and Florida Keys, along with "otherwise protected areas." Undeveloped coastal barriers within any area established by law for natural resource conservation or wildlife sanctuary purposes can fall under this rule.

The Federal Emergency Management Agency determines the location of special flood hazard areas. All FHA borrowers must purchase flood insurance as a requirement for closing if any part of the property is located in such areas. This holds true whether it's the house or other structures on the land. Premiums for flood insurance must be part of the escrow, along with money for property taxes. The borrower is usually expected to foot the bill for the cost of the flood zone determination.

FEMA makes Flood Insurance Rate Maps, or FIRMS, for every community in the country. The maps are revised periodically. That means the house you bought on what was considered "safe" ground 10 years ago could be in a flood hazard area now. If your lender finds that a FIRM revision affects your property, you will be required to get flood insurance. The lender can force flood insurance on you, at your expense, if the policy lapses or the coverage is no longer adequate.