FHA Opens Floodgates for Borrowers: Now Allowed to Buy Private Flood Insurance
April 10, 2023
Author: Deena Gallo

The Federal Housing Administration (FHA) has recently changed its policy to allow borrowers to purchase private flood insurance, in addition to the National Flood Insurance Program (NFIP). This is a significant development for those seeking FHA loans, as it gives them more options and potentially lower costs for flood insurance coverage.

Previously, FHA borrowers were required to purchase flood insurance through the NFIP, which is managed by the Federal Emergency Management Agency (FEMA). The NFIP is a government program that provides flood insurance to homeowners, renters, and business owners in participating communities. However, the premiums for NFIP policies can be expensive and may not provide adequate coverage for all homeowners.

Under the new policy, FHA borrowers now have the option to purchase private flood insurance policies that meet certain criteria. The private insurance must provide coverage that is at least as broad as the coverage provided by the NFIP, and it must be backed by an insurance company that meets certain financial strength and stability requirements.

The benefits of private flood insurance include potentially lower premiums and broader coverage options. Private insurers may be able to offer more competitive rates than the NFIP, and they may be able to provide coverage for additional types of flooding events that are not covered by the NFIP.

It is important to note that FHA borrowers are not required to purchase private flood insurance. They can still choose to purchase a policy through the NFIP if they prefer. However, the option to purchase private insurance gives borrowers more choices and may help them find a policy that better fits their needs and budget.

The recent policy change by the FHA to allow borrowers to purchase private flood insurance is a positive development for those seeking FHA loans. It gives them more options for coverage and potentially lower costs for flood insurance. Homeowners should carefully consider their options and work with their lender and insurance agent to find the best policy for their needs.