You’ve recently had an offer accepted on a home in a great area, but there’s one problem: You have to get flood insurance in order to get your mortgage. While this isn’t a deal-breaker, it may leave you wondering exactly how much insurance you need to have on the property.
You want to protect your home in Tampa Bay, but you also don’t want to pay for more coverage than you actually need. How do you really know how much flood insurance you need?
WHO NEEDS FLOOD INSURANCE?
Depending on the conditions under which you buy your home, you may be required to carry flood insurance.
If you have a federally backed mortgage, such as an FHA loan, and your home is located in a high-risk flood zone, you must purchase flood insurance for your home.
Many mortgage lenders also require homeowners to carry flood insurance if they’re located in a flood zone.
For homeowners who don’t have a mortgage, it is advised to carry flood insurance if you live in a high-risk flood area.
HOW WILL I KNOW IF I NEED FLOOD INSURANCE?
For most homeowners, you will be told that the home needs flood insurance when you receive the disclosures during your first viewing. The disclosures usually say the home had previous flood damage or is located on a flood plain.
If you don’t see anything in the disclosures about flood damage or needing flood insurance, ask the real estate agent if they know of any prior damage from flooding.
Occasionally, there will be no information on the disclosures or from the real estate agent about prior flood damage, but it is discovered during the inspection process.
Again, needing flood insurance isn’t necessarily a deal-breaker, nor does it mean that the home is likely to flood again; however, it can be expensive to carry flood insurance on a home, so knowing this information may change your mind about that once-perfect home in Tampa Bay.
WHY IS FLOOD INSURANCE REQUIRED?
Flood damage can be devastating for a property.
Depending on the extent of the damage, you could require some flood remediation services and minor property replacement claims for lesser flooding, or your entire home could need to be rebuilt in the case of a serious flood.
Because your lender has a financial stake in your mortgage – whether it’s backed by the federal government or a private company – protecting their investment is important. If your home is located in an area where you could potentially have flood damage, that means you may have to put in an expensive claim at some point in your ownership.
To protect themselves from losing money on your home loan, your lender requires flood insurance to help offset the cost of any claims that may arise.
HOW MUCH FLOOD INSURANCE DO I NEED ON MY HOME IN [MARKET_CITY]?
The amount of flood insurance is going to depend on whether or not you have a mortgage on your home.
If you aren’t borrowing money to pay for your home, either because you were able to pay for it up front or you’ve paid off your mortgage, it is recommended that you carry flood insurance equal to the value of your home and the possessions inside it.
Flood insurance isn’t required in this situation, but it is highly recommended for your financial protection.
For those who do have a mortgage, whether federally backed or private, you must have flood insurance equal to the property development cost or the coverage maximum, whichever is lower. The cost of property development includes rebuilding your home if it’s destroyed. Your insurance company’s underwriter will determine this amount based on what materials your home is made of, as well as the cost of goods and services in Tampa Bay.
The maximums depend on if you purchase federal or private flood insurance. Federal insurance is generally limited to $250,000 for the structure and $100,000 for personal property, while private carrier limits can be much higher.