What Homebuyers Need to Know About a Possible Flood Insurance Lapse
The story
The federal flood insurance program has the potential to lapse during the middle of hurricane season. Homebuyers who plan to purchase flood insurance might want to hit the gas pedal on buying a policy. We’re here to break it all down for you so you can prepare.
Tell me more about it.
Basically, lawmakers haven’t made a clear decision on new flood insurance legislature. Since September 2017, lawmakers enacted six short-term extensions to patch up the holes in the flood insurance agenda. It’s no surprise that those holes are starting to spring a leak. This is not the first time a flood insurance lapse has occurred. The most recent lapse occurred for one month during 2010 where approximately 40,000 home-sales were canceled, according to the National Association of REALTORS®
How does this affect me?
Federal law requires some homebuyers that purchase in floodplains to provide proof of flood insurance before they can close on their new home. In certain flood-prone areas, private insurance is unavailable, and the federal program is all that is offered to homebuyers. This means that any homebuyer whose lender requires flood insurance will experience a delay in purchasing their home, due to not having access to a federal policy.
Got it. Is there a bright side?
The bad news is that homeowners whose policy expires after July 31 won’t qualify to renew their insurance if the program lapses. However, most insurance policies have a 30-day grace period that homeowners can use to their benefit if their policy is discontinued.
How can I prepare?
Besides hoping that a flood insurance lapse does not occur, current homeowners and homebuyers need to purchase flood insurance immediately. Do not wait for the thunder and lightning to roll in. FYI—It takes about 30 days for a federal policy to kick in.
Bottom line…
The flood insurance lapse is a pretty big deal, especially if you are buying into or live in hurricane or flood-prone areas. Translation: speak with your Loan Officer to see if a flood insurance lapse could affect you.