Home Buying in a Flood Plain
Home Buying in a Flood Plain
You want to pay the lowest price possible for your new home, but is cheaper always better? The real estate market is constantly fluctuating. For new buyers, this can be a frustrating time. Finances may restrict what houses you view, and you might be tempted to make an offer on a place in a flood plain, especially if you are viewing it on a calm summer day. You may see it as your dream location – it might be near a peaceful river or close to the ocean. But popsci.com, in their article "Homes in flood-prone areas should be getting cheaper. They're not," explains that prices in a flood zone are not necessarily cheaper homes in the long haul. Research by Miyuki Hino and Marshall Burke of Stanford University shows that "homebuyers may not know what they're getting into when they buy houses in floodplains, leading them to overpay—to the tune of at least $44 billion." Having a buyer's agent can help you get the answers you need while home shopping. It could also help to speak to other homeowners living in the area to see what problems they may have had.
What is a Flood Plain?
Homeguides.sf.gate.com explains that "A flood plain is an area that is subject to natural flooding from an adjoining waterway." There are varying degrees of flood plains. A 100-year flood plain is an area that has a 1% annual chance of above-average flooding. On the US government FEMA website, maps to view can provide more details on a particular site. FEMA explains that the maps indicate the statistical likelihood of an area to experience a flood. A high-risk area has a greater than 1% chance of annual flooding which means that those properties have a 25% chance of flooding during a typical 30-year mortgage period. The FEMA website allows you to check flood maps and risk assessments for any specific area. Flood plains follow their own rules based on geography and don't stop at a city or county line. Therefore, some areas of a town may have a high risk of flooding while others do not. Homelight.com explains that based on the FEMA mapping system, a high-risk flood zone will be marked with an A or V, a moderate risk with a B or shaded X, and a minimal risk area will show a C or unshaded X.
What About Financing?
A flood zone may offer your dream location, but there are added costs to living in these areas. Lenders are well aware of the risks of water damage risk and will make sure that they are prepared for any property damage that might occur due to the water hazard. When applying for a mortgage, the lender will evaluate the house, outbuildings, and surrounding property and create a required amount of flood insurance for the property. Bankrate.com says that Federal mortgages such as "Fannie Mae, Freddie Mac, FHA, USDA or VA loans are all required to have flood insurance coverage if their property is in an A- or V-designated flood zone by FEMA." Depending on the home's location, flood insurance can be very costly and may not even provide full coverage if the house is destroyed due to a water-related event. Keep in mind that traditional homeowner’s insurance does not cover damage due to flood or nearby water hazards which is why the bank requires specialty flood insurance to cover these losses.
Is Flood-Zone Worth the Trouble?
As long as you can afford the extra hassle of flood insurance and financing, a waterfront property is highly desirable! Not only does this kind of property allow the homeowner to participate in water activities (swimming, fishing, boating etc…) without leaving home, but it can also provide a serene environment, and in some cases offer alternative transportation methods. Keep in mind that not every flood-zone property will be a water-front property, and some landlocked properties that are not very close to water can still flood occasionally (and therefore qualify as flood-zone). Each property should be individually evaluated based on its merits to determine whether the property is worth the extra hassle of obtaining flood insurance and risking occasional water damage.
Do Some Research
Before making an offer on a flood-zoned property, make sure that you do loads of research on whether you are truly ready to own a flood-zone house. If you continue with the purchase and then live in an area with turbulent weather, you may consider installing a weather station with alerts, such as the Ambient Weather WS-2000 Smart Weather Station so that you can keep an eye on the action.