Answers about Flood Insurance

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 the flood insurance policy.

The minimum amount of flood insurance required 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 for a residential structure), or
    • The insurable value of the structure (typically the replacement cost value of your home)

Some lenders may require more coverage 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 the existing flood insurance policy.

February 2011