After finding that perfect home for you and your family, undoubtedly you will have to seek to acquire a homeowner's insurance policy on your home. Just like any other financed asset, your lender will require you to have insurance on your home to protect their investment.
Getting insurance on your home is usually a simple task; one must contact their local insurance agent and request a formal quote. However, what happens if your home is situated in a floodplain?
Did you know that your lender may require you to get flood insurance on your home, even if this home wasn't in the floodplain 5 years ago?
What Are Floodplains?
Floodplains are established by determining the areas that flood when creeks, bayous, and river waters exceed their banks. In most cases, floodplains are determined by their chance to flood in the future, hence the 10, 100, and 500 year floodplain references.
Many times these terms can be confused as the risk of flood is determined over a long period of time. The Harris County Flood Control District in Houston has broken these floodplains down into one year increments, and given a chance of possible flooding based on a one year time frame for each floodplain.
- 10 Year Floodplain - 10% chance of flooding in a single year - 95% chance of flooding in a 30 year mortgage.
- 100 Year Floodplain - 1% chance of flooding in a single year - 26% chance of flooding in a 30 year mortgage.
- 500 Year Floodplain - 0.2% chance of flooding in a single year - 6% chance of flooding in a 30 year mortgage.
As you can see, when the percentages are broken down into the yearly level they are much easier to understand. It's also important to know that FEMA (Federal Emergency Management Agency) sets the rates for flood insurance and it will not differ between insurance company to insurance company.
They will first determine the floodplain you are located in, then using your elevation cetificate that optionally comes when purchasing a survey, will determine the yearly rate for your flood insurance.
If you are in need for flood insurance, it is best to speak with your local insurance agent to determine the cost incurred for obtaining a property located in a flood plain.
Is It A Bad Choice?
Buying a home in a floodplain (also referred to as a flood zone) is not necessarily a bad decision if you are deciding to live in an area that is prone to flooding. Many areas in and around coastal cities are located in various floodplain areas.
Does this make buying in a home in a floodplain a bad decision? Absolutely not! It simply means that homes in this area are more susceptable to flooding and necessary precautions must be taken. Home owners will have to obtain additional insurance to protect themselves in case of a flooding emergency.
On the contrary, if you decide to purchase a home in the 10 year floodplain, you must understand that this home is very likely to flood during inclement weather. Be sure to review the pros and cons of purchasing a home in a floodplain with your real estate professional to ensure that you are making the most educated and logical decision in your next real estate transaction.
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