A Guide To Buying A House In A Flood Zone

Living near water is a delicate balance: it’s nice to have a body of water close by, but not so nice when it’s creeping into your basement.

Water can be extremely destructive to a home. A single inch of floodwater can cause up to $25,000 in damage, according to the Federal Emergency Management Agency (FEMA). This doesn’t necessarily mean you should avoid buying any house in an area that’s at risk for flooding, but you do need to be prepared for the insurance costs and have a good understanding of what your risks are and how you can mitigate them.

Here’s what you should know before buying a house in a flood zone.

An area’s flood zone designation tells us its flood risk as determined by FEMA. FEMA uses a variety of different codes to communicate the specific flood risk to an area.

Special Flood Hazard Areas: High-Risk Zones

These zones are known as Special Flood Hazard Areas (SFHA). If your flood zone code begins with an A or a V, you’re in an SFHA. SFHAs are labeled as Zone A, Zone AO, Zone AH, Zones A1-A30, Zone AE, Zone A99, Zone AR, Zone AR/AE, Zone AR/AO, Zone AR/A1-A30, Zone AR/A, Zone V, Zone VE and Zones V1-V30.

The difference between these zones marked “A” and “V” is that a “V” indicates the zone is in a coastal area.

Moderate-Risk Zones

In a moderate-risk zone, it’s less likely that the area will experience flooding, but it’s still possible. These zones are coded as Zone B or Zone X (shaded).

Minimal-Risk Zones

In these zones, the risk of flooding is minimal, though flooding is still possible. These zones are either Zone C or Zone X (unshaded).

The first thing to do is to figure out which zone the house you’re considering is located in.

Find Your Zone

You can use FEMA’s Flood Map Service Center to find out whether your home or a home you’re considering purchasing is in a high-risk flood zone.

If you’re in an SFHA, that means you have a 1% or higher chance of experiencing flooding each year. That’s the definition of a 100-year flood (statistically, a 1% chance of flooding will result in a flood at least once every 100 years). While that might sound relatively low, over the course of a 30-year mortgage, that translates to a one in four chance (or slightly greater) of experiencing flooding, according to FEMA.

Understand Your Risk

It’s important to understand that buying a house in a low or moderate risk area isn’t a guarantee of protection from flooding.

According to the National Flood Insurance Program (NFIP), which is the federal program that underwrites flood insurance policies to those in participating communities, policyholders outside high-risk flood areas accounted for 40% of all NFIP claims between 2014 – 2018. People shouldn’t be surprised if this trend continues, based on weather and environmental changes over the past several years. The solution is to be prepared.

Budget For Flood Insurance

If you are currently in the market for a new home in a flood zone, you should weigh the risk that flooding presents before going through with the purchase. Understand that homeowners insurance does not cover damage due to flooding. We’ll discuss the costs of flood insurance below.

You should also know that lenders may have additional requirements – for example, they may ask for a Natural Hazard Disclosure Report – for homes located in a flood zone. Remember that you'll pay for these on top of your other mortgage costs, so consider carefully before choosing a home in a high-risk area.

If your dream home is in an SFHA, you’ll need to be prepared. Here are some of the threats you take on when you buy in a high-risk flood zone.

Potential For Significant Flood Damage

Flooding can cause everything from mold growth to major structural damage, depending on the severity.

Extreme flooding or flooding caused by a natural disaster can be both emotionally and financially devastating. It could mean having to evacuate your home and find temporary shelter while repairs are completed or even having to completely rebuild the home or relocate and start over somewhere else.

Even small amounts of flooding can create huge headaches for homeowners. It could mean replacing flooring, drywall and damaged personal belongings such as furniture, or having to hire professionals to remove the water from your home and sanitize the affected areas.

High Cost Of Flood Insurance

The higher your risk, the more you’ll likely pay for flood insurance. According to FEMA, the average flood insurance policy premium was $700 in 2019.

If you want to be covered in the event of flood damage, you’ll need flood insurance. Regular homeowners insurance doesn’t typically cover damage caused by flooding, so if you’re uninsured, you could end up having to pay hefty costs out of pocket.

If you get flood insurance through NFIP, you can get up to $250,000 in coverage for your home’s structure and up to $100,000 in coverage for the contents of your home, which includes things like furniture or electronics.

If you need a larger policy or want to purchase additional coverage, you may be able to do so through a private insurer.

Can Be Difficult To Sell

Buyers may be hesitant to buy a home located in a high-risk flood zone. This makes sense – buying a home is a huge investment, and the higher chance of flooding puts that investment at risk. Plus, these properties can be expensive to insure.

Because of this, it can be difficult to sell a home in an SFHA.

Getting a mortgage in a high-risk flood area is basically the same process as it is anywhere else. The main difference is the types of insurance you’ll need to buy.

If you’re using a mortgage to purchase a home in an SFHA, you’ll most likely be required to purchase a flood insurance policy. Flood insurance coverage is required for borrowers who have government-backed loans, such as FHA loans, or conventional loans backed by Fannie Mae or Freddie Mac.

It’s important to factor in the cost of flood insurance premiums when you’re considering your home buying budget. Your lender may roll your flood insurance premium into your monthly mortgage payment, so you’ll pay a little bit of your annual premium into escrow each month and then your lender will make the payment when it's due.

Whether you elect to pay it once a year in a lump sum or monthly, you'll need to make the payment or you could eventually be in default of your loan.

Applying for initial mortgage approval can be a good way to figure out what you qualify for so you'll have a better idea of what extras – like flood insurance – you can afford.

If you’re considering buying a home that’s at significant risk of flooding, work with your real estate agent to learn more about the property’s history.

What Is The Home’s Flood Zone Designation?

Your real estate agent should be able to answer this question for you, but as we already mentioned, you can also find out yourself by entering the property’s address into FEMA’s flood map database.

How Often Does This Property Flood?

Laws vary from state to state when it comes to required seller disclosures of flood risk, but if you can, you should try to find out if the home has experienced flooding or flood damage in the past and how frequently flooding happens.

If you don’t get much information from the seller and your state doesn’t require flood risk disclosures, you can do a little research of your own by asking neighbors or searching online archives from local news outlets.

What Flood Mitigation Has Been Done On The Property And In The Community?

Ask the seller what, if anything, has been done to mitigate the risk of flooding on the property. Your real estate agent can also help you find out what steps the local government has taken in terms of its floodplain management to protect the community as a whole from the area’s flood risks.

Deciding where to live is an incredibly personal decision, and only you can decide whether buying a house in an SFHA is the right choice for you.

Homes in high-risk flood areas can be risky to own and more expensive to insure. But they can also be a lot of fun to own, especially if the property is located on a beautiful waterfront or coastal area.

It’s important to learn as much about the property as you can, so that whatever decision you come to, it’s an informed one.

As you consider whether to buy in a flood zone, think about your own level of comfort with risk as well as your ability to financially recover from potential flood damage. Consider whether flood insurance will give you peace of mind, even if your lender doesn’t require it, and remember to factor these premiums into your monthly budget.

Ready to learn more about what you can afford? Get approved now to learn the upper limit of your home purchase budget.