I plan to obtain a home equity loan. My property is in a Special Flood Hazard Area (SFHA). Will this affect my current flood insurance policy?

It depends. When you obtain the home equity loan, the lender must ensure that adequate flood insurance is in place or require that additional flood insurance coverage be added to your existing flood insurance policy.

Under the National Flood Insurance Act, the mandatory flood insurance purchase amount on a one-to-four family non-condominium residential structure securing both a first and second lien is the lesser of:

  • The combined total outstanding principal balance of the first and second loans,
  • The maximum amount of insurance available under the National Flood Insurance Program (NFIP), which is the lesser of:
    • The maximum limit available for the type of structure ($250,000), or
    • The insurable value of the structure (typically the replacement cost value of your home)

Some lenders may require more coverage than the minimum amount required by law to fully protect their collateral.

The junior or second lien holder should also ensure that the borrower adds the junior or second lien holder’s name as mortgagee/loss payee to any existing flood insurance policy.

September 2019