HELOC application demands for flood insurance on primary res.?

Question

Hi everybody!

I have a primary residence in northern Nevada worth somewhere close to 450,000 and I bought it for 220,000. I looked into getting a HELOC to look for investment properties. I got approved with no problems at all, but there is one thing that popped up that could be an issue. The bank said that I would need to have flood insurance in an AO floodplain ( I need to study to see what that really means). Problem is that I found that flood insurance can be quite pricy compared to the cash flow that I could be receiving through a rental. Has anybody ever had this issue and found a way to resolve it? Thank you for reading my lengthy question and I really appreciate any help!

Owen Dashner · Answer

Use private market flood insurance, not the FEMA product.  It is WAY cheaper.  Also, you may consider talking with someone in your area to have an elevation survey done.  Favorable results on it could be used for you to do a LOMA (Letter of Map Amendment) with FEMA.  The application process is a little tedious, but well worth it if you can get a LOMA issued.  Typically lenders will remove the flood policy requirements if you can provide a LOMA.  It depends on the lender, but I was able to successfully get flood policy requirements removed from a 4 plex mortgage a couple months ago, saving me over $3000 per year in flood insurance.

Robert Murphy · Answer

@Austin Dudley and @Steve Morris you may already know this but all federally backed lenders are required by Law to enforce borrowers to purchase a flood insurance policy if the Structure is in a High-risk flood zone. The Structure is key - All Lenders pull what is called a Flood zone determination (FZD) that tells them if the property will require flood insurance there are 50 different companies that provide these FZD to the lenders and some are better then others. We have seen some lenders that require flood insurance on a property even though the structure isn't in the high-risk flood zone. So using the resource that @John Mocker provided in his comments. Or this map link here you can find if your structure is in the flood plain map. IF IT IS WILL BE A BLUISH COLOR. Even though a Heloc is a line of credit and you may not have borrowed yet you will have to get the flood insurance policy to have this kind of funds. I haven't found a lender that truly understand how to get around this and they all want to avoid the fines they will get if they have a loan that didn't get the required flood insurance. Every so often they get audited by the government.

As our smart BP community has recommended there are alternatives to the Government policies called "private flood insurance". (Google this term)  and you will see that some of these options are also called "Lloyds of London flood insurance" (google this term). Sometimes you can save up to 50% over the Government policy that has had a near monopoly for over 50 years on flood insurance.

LOMA's can be an option but they take a bunch of time and some money and oftentimes are not approved by FEMA there are a few tricks to figure out if the property will qualify for a LOMA and if you want the tricks let me know in this thread and I will try my best to explain how you can tell if your property would have a good chance of getting a LOMA. Again this takes time and some money and isn't a guarantee. So if you are just wanting to get the loan I would suggest you just buy a private flood insurance policy and then discuss with your flood expert to see if the LOMA option is a good idea for you to pursue.

Your flood nerd

Alex Forest · Answer

@Austin Dudley keep in mind, this would likely be an issue if you plan to sell the residence as well.  It sounds like there was a recent mapping revision that brought your property in, since you purchased it.  It could be worth in investigating some of the options mentioned.   I believe an AO is only 1 to 3 feet depth.  If this is just touching your land but does not get up to the base flood elevation (BFE) of your house (or heat pump or basement windows), you may be in better shape to get documentation that will assist with this for the HELOC and any potential future sale.

Steve Morris · Answer

"Has anybody ever had this issue and found a way to resolve it?"

Different lender?  Different insurer?

Don't think, with this lender, you have much choice, you're asking them for money and they're asking for warranties in return.

Gardnerville has a flooding issue?  Driven thru there on the way to Reno and not a lot besides that manu housing park with seniors.

Annchen Knodt · Answer

Have you looked into private flood insurance?  For one of my rentals, insurance through NFIP was a deal breaker, but I was able to get it through a private company at a small fraction of the cost, and the lender is fine with it.

Jerel Ehlert · Answer

If you are finding flood insurance expensive, probably not looking in the right places.  FEMA is the insurer of last resort in every state.  Typically runs a few hundred buck each year.

Regardless of your flavor of Kool-Aid, global warming is real and insurance actuarials calculate the probability of flooding.  This is capitalism making use of data.  As Hurricane Harvey showed, "flood maps" can be unreliable in light of global warming.

If a few hundred dollars makes the difference between profit or not, your deal might need to be reconsidered.

HELOC application demands for flood insurance on primary res.?

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