Do I Have to Carry Home Insurance When Building a Home or Property Improvement?

Building your house up higher does not automatically remove your lender’s requirement to carry flood insurance.

I realized originally, years ago when I was a lender, how I misunderstood this.

Back when I was a lender, I had a customer come in and wanted to talk to me about constructing their primary residence. They had found this beautiful piece of property with all these gorgeous trees on it. It was really beautiful, and they just wanted to talk about the construction process.

The first thing that I did, and that I still do to this day, is pull up the flood map because where we live along the Texas coast, there are areas that are prone to flooding, and we have to look at FEMA flood maps.

I pulled up this piece of property, and I saw that the entire property was located in the flood zone.

When I mentioned this to my customer, their response was something that I’ve heard hundreds of times in this rural area, which is, “Yeah, I understand. I’m going to build it up, and I’m going to build it up actually higher than the county road. So I know that I’m not going to have a problem with water coming into the house.”

My response was, “That’s great from a flooding standpoint and water intrusion in the house, but that doesn’t mean that that’s automatically going to remove your lender’s requirement to carry flood insurance.”

If your lender is federally regulated, they are required to make sure that the improvement you’re building has flood insurance coverage.

If that house that the customer is building is in the flood zone, we as a lender were required to make sure that they had flood insurance coverage.

Sure, building your house higher can decrease your flood insurance premium, but that’s something you need to discuss with your insurance provider.

I have seen it where somebody builds up higher, they get an elevation certificate, and their premium is a lot lower.

And I know that there’s a formal process directly through FEMA where you can petition it, and they can single out that area that you plan to build. But that’s a formal process through FEMA.

The lender doesn’t get to choose or decide. The federal government says that they have to make sure that you carry flood insurance. And annually, they check it. If you drop your flood insurance, they have to force-place it.

They have to make sure that you carry flood insurance.

My customers and my clients now, when I talk to them about being in the flood zone, some of them get nervous.

Why should I be nervous?

No, I’m not saying you should be nervous. I want to talk to you about the cost of flood insurance and how, as long as you have a principal balance with your lender, they’re going to require you to carry flood insurance.

I’m not saying that it’s bad to be located in the flood zone. However, I know some gorgeous properties that are in the flood zone, but the house is built high enough that everyone’s great and fine with it.

It’s just that you have to continue to carry flood insurance. And what is that going to cost?

Now, if you’re one of those happy few people that can construct all of this and pay cash for it, of course, you only have to carry flood insurance if you want to.

As long as you owe money, you’re going to have to.

Does that make sense?

Hope this helps. Take care, have a good day.