New HUD rule expands flood insurance choices for FHA borrowers
Floods can happen anywhere. In fact, just one inch of floodwater can cause significant damage. Unfortunately, most homeowners’ insurance does not cover flood damage. Flood insurance is a separate policy that can cover homes, the contents of a home, or both, so it is important to protect your most important financial asset.
In the past, flood insurance was only available through the National Flood Insurance Program (NFIP) managed by FEMA, limiting consumer choices. As of December 21, 2022, the US Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), will allow homeowners with FHA-insured mortgage financing to obtain flood insurance policies that conform to FHA requirements from private insurance providers. An update to the HUD’s new rule will significantly expand the flood insurance choices for FHA borrowers.
The National Association of Realtors applauds this ruling for FHA loans based on the belief that many private insurers now offer higher quality, lower cost options than the NFIP. In addition, NAR believes that FHA borrowers should not be excluded from options available to more conventional borrowers since 2019.
Now, because of this new rule, FHA loan holders can choose either flood insurance through the National Flood Insurance Program or the private flood insurance market.
Through its Climate Action Plan, the current administration believes that this will help borrowers who face affordability issues right now to get more affordable coverage or even enhance their coverage.
How to get flood insurance
1. The National Flood Insurance Program (NFIP)
NFIP is the federal plan from FEMA. You can contact them directly, or your home insurance agent can process your application for a policy. NFIP must provide insurance to all applicants who live in participating communities.
2. Private flood insurance
This is available from some insurance companies. However, they can be selective about who they choose to insure. Your home insurance agent may provide this insurance or can refer you to a provider. Your lender may also be able to make recommendations.
If you have a government-backed loan and live in a high-risk flood area, you must have flood insurance. The great news is that now you have a choice of where to purchase this insurance with the possibility of getting a more competitively priced policy.