Flood Plain Properties and USDA Home Loans

Mortgage and Lending with Equity Resources NMLS 67179 Licensed in NC

In North Carolina, we don’t have a ton of properties that are sitting in a high risk of flood, but there are some properties in almost every county, with a particular concentration in the Eastern part of the State.  In some cases, the whole lot is not in the flood plain, only a portion of the lot (maybe a back corner) is in the flood prone area.  If that is the case, with the home you are interested in purchasing, you might be required to carry flood insurance.  Flood Plain Properties and USDA Home Loans are not normally a problem, but we recently ran into something unusual (to us).

For instance, we found this on the Carteret County Website:

The dominant source of flooding in Carteret County North Carolina is wind-driven storm surge in association with Hurricanes, Tropical Storms, and Nor’easters.  Approximately 33% (22,179) of Carteret County’s total population of 66,469 people live within a Special Flood Hazard Area (SFHA), while approximately 47% (166,120 acres) of Carteret County’s total land area lies within the SFHA.  Additionally, 24% of critical facilities and 39% of road miles (569 miles) are located within the SFHA.


Flood Plain Properties and USDA Home Loans

It has been brought to our attention a little known requirement on flood insurance for government-backed loans that we feel is important for everyone to be aware of. For FHA Loans, USDA Home Loans, and VA loans – If a borrower is required to obtain flood insurance (as determined by the flood certificate), they MUST obtain a policy through the National Flood Insurance Program (NFIP).

Private Flood Insurance Policies are NOT accepted.

The main item to identify is that there are two types of flood insurance: A NFIP Policy and a Private Policy.

It may seem obvious, but the NFIP Policies are backed by the federal government (FEMA) where as a Private Policy is backed by a private insurer.

Conventional Loans are the only program that will accept private policies. 

Again, a Real Estate professional, a Seller, or a Builder might give you a quote for flood Insurance that is fairly low – and they could be absolutely right… but if the flood insurance is through a private company, USDA Home Loan Underwriters are not going to accept it.

To be clear you CAN buy Flood Plain Properties and still qualify for USDA Home Loans, which do not require any down payment – but the Flood Insurance Policy must be from NFIP / FEMA.

An NFIP Policy is obtained through independent insurance agents, but they go to the NFIP to write the policy (Premium/coverage rates are set by the government).

NFIP policies are more accessible to most independent insurance agents (which is what we usually see), but some agents will resort to a private policy for cheaper premiums. This is not acceptable per these programs’ guidelines.

When you call to get a quote on Flood Plain Properties with a USDA Home Loan, the Insurance Agent is likely to give you a quote with your car (s), home AND flood insurance all at once.  

This is going to impact your closing costs, so you definitely need to discuss the fact that the property is in a flood zone with your lender as early in the process as possible!


Can You “Roll In” Closing Costs For USDA Home Loans

We often have folks who are looking at USDA Home Loans because they have very little extra cash to buy a house. Since USDA Loans don’t have any down payment and the Seller can pay most of the closing costs… HOWEVER, in NC right now, we are not seeing that happen.

We use to tell folks that you could get into a home using USDA Home Loan financing with $100 out of pocket.  Those days are gone.

You should have at least 2.5% of your sales price set aside for your portion of the closing costs.  There are too many people looking for a home, and not enough of them on the market – so the chance of a Seller taking an offer where they need to pay closing costs is slim (I’m just being honest with what we are seeing right now).  The money for the closing costs can be a gift (or a series of gifts) or it can come from the sale of a bass boat (for instance), but you can’t get an unsecured loan for it (not coming from your credit card).

If the you won’t be able to cover ALL of the closing costs… even if it’s just your pre-paid items, meaning your portion of the Home Owner’s Insurance and Property Taxes AND your flood insurance are close to the maximum number you can afford?  What other options do you have?

You can NOT “roll-in” these closing costs into the home.  Meaning, if your portion of the costs are $2000, and the house is selling for $100,000 – we can’t just bump up what we are loaning you to cover the $2000.

Also. you MIGHT qualify for the NCHFA Programs that offer up to 3% to cover the extra costs.  This is in the form of a Grant, that has no monthly payments, and is forgivable over time.


Not all lenders offer this NCHFA Grant Program, so if you are close on trying to figure out your USDA Home Loan Closing Costs – or if you have more questions about buying a home in a flood plain with USDA Home Loans – call Steve and Eleanor Thorne 919 649 5058.  We want to help make your home buying dreams come true!!


Originally posted at NCFHAExpert.com


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Nina Hollander
Coldwell Banker Residential Brokerage - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Great post, Eleanor... I did not know this about flood plain properties... then again in 20 years, I've not sold one of those (buyers are very resistant). And increasingly, when it comes to USDA, we have fewer and fewer areas that qualify so I don't do one of those more than once every few years.

Jul 31, 2018 08:48 AM #1
Pat Starnes-Front Gate Realty
Front Gate Real Estate - Brandon, MS
601-991-2900 Office; 601-278-4513 Cell

That's great information to share Eleanor. Our insurance agents know the rules regarding FEMA and they  write the coverage through the property government agency. I would never venture to quote a flood policy and always defer to the experts.

Sep 12, 2018 08:28 AM #2
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Eleanor Thorne

Equity Resources 919-649-5058
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