Lenders require you to have flood insurance before closing on a home loan. A lender will obtain a “flood certificate” early in the underwriting process, which will also indicate whether flood insurance is required.
Read our new article to learn more about flood insurance: Homeowners Insurance For Your New Home.
Your insurance agent will assist you in determining the amount of coverage needed to protect your home and will provide you various options for deductibles and additional coverage options you may wish to add to your policy. We typically advise our clients to obtain at least two or three quotes as policies and rates can vary by company. Your insurance agent may also suggest that you obtain certain inspections, such as a four-point inspection or wind mitigation inspection, which can save you money on your policy.
Also see the Investopedia article: Understanding Lender-Required Flood Insurance.
Homeowners insurance policies (also called hazard insurance) do not cover flooding – only a separate insurance product can protect against flood damage. Flood insurance is usually optional for mortgaged homeowners in what are normally considered low-risk flood areas. It may even be optional for mortgaged homeowners in high-risk flood areas, depending on the mortgage product. However, homeowners who take out a mortgage from a lender that is federally regulated or insured (such as an FHA mortgage) and buy a home in a high-risk flood zone (also known as a Special Flood Hazard Area) will be required to buy flood insurance. In most cases, the homeowner will have to pay for flood insurance every year until the mortgage is paid off.