One of the top features buyers should consider about a new home is proximity to a body of water. The picturesque vistas and unique lifestyle water living can offer are idyllic, but having a home in a flood zone can quickly become a nightmare when rising waters encroach on the property. As extreme weather events become more prevalent across the country, it’s important for homebuyers to understand the risks, requirements and costs of owning property in a flood zone.
If you’re considering purchasing a home in a flood zone, here are 5 things you need to know before buying.
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1. Coastal Cities Aren’t The Only Flood Zones
One of the biggest misconceptions about flood zones is that it’s only applicable to homes near water. For coastal cities that is typically true, but areas can be in a flood zone for other reasons. Properties near lakes, rivers and marshes are other contenders. The property could also be on low land susceptible to heavy rains or flash flooding.
The Federal Emergency Management Agency (FEMA) is responsible for designating flood zones and updating the flood maps every five years. The agency uses data from insurance agencies to determine a property’s risk for flooding. Some factors FEMA uses to determine the flood zone are:
— Soil quality and topography.
— Regional weather patterns.
— Environmental conditions.
— Proximity to water.
— Past flooding occurrences.
To see if the property you are considering buying is in a high-risk flood zone, you can enter the property address into their website portal.
— If the property is in a high-risk flood zone, the area will be shaded blue and begin with an A or a V. If the property is shaded in orange and begins with a B or X, it’s considered moderate risk. Non-shaded areas mean you’re in a low-risk flood zone. It’s important to note, flooding can always happen; it just means the chances are lower in non-shaded areas of the FEMA map.
2. Flood Insurance Premiums Will Range Dramatically
Homeowners in flood zones don’t pay the same price for insurance across the board. The premium for flood insurance will range based on the home’s build, age, elevation, value, if it is built to withstand minimal damage from flooding and its overall flood risk factor (what zone it is in). If you’re in a moderate or low-risk area, the cost to insure your home will be far less than a home that is a block from the ocean.
The state the property is in will also impact flood insurance premiums. Areas prone to higher occurrences of flooding from natural disasters — like hurricanes in Florida, Louisiana, Texas and coastal areas of North Carolina and South Carolina — are much more likely to have higher premiums than a property near a river in New Jersey that historically floods once every 40 years.
“Normally, flood insurance coverage for properties in a flood zone will cost thousands of dollars per year,” says Nick Schrader, insurance agent and owner of Second Western Insurance in Los Angeles. “This covers the property for rain floods and exterior water damage from things like a creek overflowing. If the property is not in a flood zone, flood insurance coverage should be very inexpensive — just a few hundred dollars a year.”
The National Flood Insurance Program (NFIP) is a government-sponsored insurance program to help provide flood insurance. However, coverage amounts stop at $250,000 for a dwelling and $100,000 for possessions. If you need higher coverage, you’ll have to choose a private insurance company, but expect premium rates to be higher.
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3. Flood Insurance is Required By Most Lenders If You’re In a High-Risk Flood Zone
If the property is in a high-risk flood zone flood and your loan is insured or backed by a federal agency like the VA, FHA or Fannie or Freddie Mac, flood insurance will be required. Coverage is only optional if your property lies outside of the moderate to high-risk flood zone category. Even then, lenders who are insured may still require flood insurance.
Some private insurance companies are moving toward requiring all properties over a certain value have flood insurance in key states. For example, in Florida, as of Jan. 1, 2024, Citizens Insurance requires all insured homes valued over $600,000 to have flood insurance added to their policy, regardless of where their property lies on the FEMA map. By 2027, all properties in Florida insured by Citizen will need flood insurance on their policy.
4. Regular Insurance Only Covers Some Types of Flooding
The type of flooding will ultimately determine what type of insurance will cover damages. For example, “sudden and accidental water damage such as a pipe bursting or toilet overflowing is covered in standard home insurance,” says Schrader. “Flood insurance covers water damage brought from outside the home, like rain, storm surge or a creek overflowing, which is not included in standard home insurance.”
According to FEMA, around 40% of all NFIP claims come from areas outside that aren’t high-risk flood zones. For those seeking coverage and protection from all types of water damage, purchasing optional flood insurance is a smart move.
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5. Flood Zones Can Impact Your Home’s Appeal or Value
While not always the case, having a home in a flood zone could hurt your property value or its appeal to buyers when selling.
“We typically reduce our acquisition cost by how much the cost of the flood insurance premiums will cut into the total monthly expenses with a conventional 30-year mortgage,” says Chicago-area real estate investor Bryan Balk with Grandview Homes. “For example, if the flood insurance premium is $1,800 a year, that would be a deduction of $150 a month in buying power. With mortgage rates currently above 7%, we would value that home about $15,000-$20,000 below what we would value a comparable home not in a flood zone.”
Properties with a water view or waterfront location often retain their value despite the higher cost and requirement for flood insurance. However, properties that don’t benefit from the beautiful vistas and are located in a high-risk flood zone may just be more expensive homes. This is an important factor to consider before buying, particularly as premiums and flood occurrences continue to climb.
Buying a home in a flood zone isn’t a deal breaker. But you should understand the risks, requirements and intricacies of homeownership in high-risk flood areas before making your big purchase.
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5 Things to Know About Buying a Home in a Flood Zone originally appeared on usnews.com
