FHA loans are government-backed mortgages that are designed to make home-ownership more accessible, and help borrowers secure a mortgage even if they have a less than perfect credit history or lack the funds needed for a large down payment.
When it comes to FHA home loans, certain special considerations must be made when it comes to flood hazard areas. This means that buyers must exercise caution when seeking FHA home loans in areas at risk of flooding, as these loans can come with some risks and added complexity.
FHA requires any home being purchased with an FHA loan in a Special Flood Hazard Area (SFHA) to have flood insurance. SFHAs are areas that FEMA has designated as having a greater chance of flooding than other lower risk areas. The Flood Disaster Protection Act of 1973 requires lenders to lend money on properties located in SFHAs only if the borrower purchases flood insurance. Borrowers should be aware of the risk of potential flooding when taking out an FHA loan in an SFHA.
In addition, buyers should also consider additional restrictions that may apply when it comes to FHA home loans in flood hazard areas. Houses built before 1975 must be inspected for evidence of existing flood damage, and any flood-prone areas in the house must be completely redone or otherwise retrofitted to meet current building standards. Buyers should be aware that there is an increased cost associated with any repairs made to the home.
Furthermore, buyers should be aware that if their property is located within a floodplain, lenders may require a flood elevation certificate, which is an evaluation of how the structure reacts to potential flooding. A flood elevation certificate may be required, even if flood insurance is not required.
In summary, FHA home loans in flood hazard areas come with certain complexities and extra costs that buyers should be aware of. It is important for buyers to be familiar with the applicable regulations and take all necessary precautions before taking out an FHA loan in a flood hazard area. By doing so, buyers can avoid potential risks and ensure their home is properly protected from flooding.
This article was contributed on Nov 17, 2023
