Buying a house in a flood zone? Here’s what to know

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So, you’ve found a home you love and are ready to make an offer. Maybe it’s right on the beach, or comes with a view of a beautiful lake. The catch? It’s in a flood zone, so the likelihood you’ll face a flood event is higher than usual.

Before buying a house in a flood zone, it’s important to know the risks and costs involved — especially with the increase in extreme weather in recent years. Purchasing flood insurance may help buyers feel more comfortable, and in some cases, doing so will be mandatory. Here’s everything to consider before buying a house in a flood zone.

What is a flood zone?

A flood zone is a geographic area that the Federal Emergency Management Agency (FEMA) has defined according to its level of flooding risk. FEMA has designated several flood zones, including moderate- to low-risk areas, high-risk areas and undetermined risk areas. These designations also fall into two categories:

• Special Flood Hazard Areas (SFHAs), which include zones beginning with the letters A or V. These areas carry at least a one-in-four chance of flooding during the lifespan of a 30-year mortgage, according to FEMA.
• Non-SFHAs, which are moderate- to low-risk areas shown on flood maps as zones beginning with the letters B, C or X. These zones receive one-third of federal disaster assistance related to flooding, FEMA reports.
  

How to find out if a house is in a flood zone

It’s not difficult to find out if a property you’re interested in is located within a designated flood zone. Simply visit FEMA’s Flood Map Service Center and search using the property’s address. Your real estate agent should also know. If the answer is yes, find out which zone it is and what that designation means.

It’s a good idea to seek out this information early in the homebuying process, well before you make an offer on a home. You can use the Flood Map Service Center tools to investigate an entire area, so you know where flood zones are before you even begin your search. Before you make an offer, have your insurance agent search the claim history on the house so you know if it has suffered any previous damage, and how much. (If it has, let the seller know that you know about the previous claim history — it can be a good negotiating technique.)

And once you’ve made an offer, it’s wise to have a thorough home inspection conducted. This can reveal any hidden red flags, including drainage issues or signs of existing or previous flood damage.  Instruct the inspector to look for signs of previous water damage and the adequacy of repairs.

What to know when buying a house in a flood zone

If you are considering buying a home in a flood zone, it’s important to understand what exactly that means. There are several different types of flood zones, with the most common being zones A and V. Zone A is defined as being in a low-lying area and close to a body of water, like a lake. Zone V homes are in coastal regions and may be exposed to flash floods, hurricanes and other weather that can lead to exposure to water and weather-related hazards. The highest-risk areas are defined by FEMA as having a 1 percent chance annually of experiencing flooding, and a 26 percent chance over the course of a 30-year mortgage.

Buying a home in a low or moderate-risk area instead of a high-risk area does not guarantee that you’ll be free of flooding, just that the risk is lower. It’s simply a matter of probability, and changing climate conditions can lead to regions becoming more susceptible to flooding over time. But if you’re in a higher-risk area, expect to pay more for flood insurance — your location’s flood-zone designation is one of the factors that determines your insurance premium.

Advantages of buying in a flood zone

One possible benefit to buying a home in a higher-risk flood zone versus a lower-risk zone is that you may pay less for the property. (However, over time, this may be offset by the cumulative flood-insurance premiums.)

The major benefit is that the area or neighborhood may well be your dream location. Many people buy homes in a flood zone because they want to live in a waterfront or beachfront community, and many of these are in low-lying coastal areas designated as FEMA flood zones. If waterfront property is your dream, it’s important to weigh the risks carefully. If you are building a home or buying new construction in a flood zone, check with the builders to make sure the structure is built to proper codes.

Risks of buying in a flood zone

Flood insurance can be expensive. The average annual cost for a flood policy from the National Flood Insurance Program (NFIP), which is administered by FEMA, is $888. But the premium you pay can vary depending on your location, and it may not cover 100 percent of your costs to remediate flood damage or rebuild your home. In addition, legislative proposals are being considered that may see rates rise.

Even if you have ample insurance coverage, a flooding event can be extremely disruptive and stressful. Expect the claims process to be more complicated and take longer than other types of insurance claims, and if you end up with severe damage, you may have to move out of your home to have it properly repaired. (Flood insurance does not cover the cost of temporary housing.) There is also the potential of needing to evacuate the home quickly if a major disaster is imminent, with no guarantee of when you might be allowed to return.

Do you need flood insurance?

If your home is in a flood zone, absolutely. The need for flood insurance when buying a house in a flood zone is critical, and if the home you’re buying is in an SFHA high-risk zone, lenders will probably consider it mandatory. This becomes especially important if you’re applying for government-insured mortgages like FHA loans, or conventional loans supported by Fannie Mae or Freddie Mac.

Even if your lender doesn’t mandate it, flood insurance can provide you with a sense of security. Flooding can cause extensive damage to a home, ranging from mold growth to significant structural damage. Even one inch of floodwater can lead to a staggering $25,000 in damage, according to FEMA.

The NFIP provides most residential flood coverage in the U.S. NFIP coverage is not available everywhere, though — in the areas where it is not available, borrowers may be able to purchase flood insurance from a private insurer.

Will a home in a flood zone be harder to sell?

Selling a home in a high-risk flood zone can present unique challenges. The property’s flood zone status can affect its market value, even if the home has never actually suffered flood damage, and it may also take longer to find a buyer when you want to sell. Owning a home in a flood-prone area can be seen as a gamble and often means higher insurance costs.

As a seller, it’s crucial to be transparent with prospective buyers about the potential flood threats, and how climate change or rising water levels could affect the property. In fact, most states require you to disclose your property’s flood status to potential buyers. The National Association of Realtors has a state-by-state map of flood disclosure requirements, so you can look up exactly what kind of disclosures are required where you live. In many states, real estate brokers have disclosure obligations covering flood risk as well.

Getting a mortgage for a house in a flood zone

Homeowners with a government-issued mortgage, such as FHA, USDA or VA loans, are required to have flood insurance coverage if their property is in a high-risk flood zone. If you’re applying for a conventional mortgage offered by a private lender (in other words, a non-government loan), or if the home you’re eyeing is in a non-SFHA zone, your lender likely won’t require flood insurance, but it may still be recommended. Assuming you obtain flood insurance as required, buying a home in a flood zone shouldn’t preclude you from securing any mortgage loan you qualify for.

Is it worth buying a house in a flood zone?

It can be, especially if you love the waterfront lifestyle. But it depends on a few factors. As a homeowner in a flood zone, you must be aware of and understand the risks, and also have the means to afford both homeowners insurance and flood insurance on top of your regular mortgage payments.

You must also be willing and prepared to take flooding precautions if necessary, and determine that the home for sale is priced right based on its location in a flood zone. Look at sales of similar homes in the same zone. A local real estate agent who knows your area well can help.

Take the time to do the proper research before purchasing a home in a flood zone. Here are a few key questions to ask the seller, to help you make a better-informed decision:

• Where is this property positioned on the existing flood map?
• What’s the classification of the flood zone for this home?
• How frequently does flooding occur on the property?
• What flood prevention measures have been implemented on this property, and within the local community?