Selling Guide

Published April 3, 2019

Determining if a Property Requires Flood Insurance

The seller/servicer must ensure that the property securing the mortgage loan is adequately protected by flood insurance when required. Flood insurance coverage is required when a mortgage loan is secured by a property located in

  • a Special Flood Hazard Area (SFHA), or

  • a Coastal Barrier Resources System (CBRS) or Otherwise Protected Area (OPA). (See below for additional information.)

The seller/servicer must determine whether or not the property is located in an SFHA by using the Standard Flood Hazard Determination form endorsed by FEMA. All flood zones beginning with the letter “A” or “V” are considered SFHAs.

The following table describes how to evaluate a property to determine if flood insurance is required. For the purpose of these requirements, the “principal structure” is the primary residential structure on the property securing the mortgage loan.

If... Then flood insurance is...
any part of the principal structure is located in an SFHA, required.
the principal structure is not located in an SFHA, but a residential detached structure attached to the land that serves as part of the security for the mortgage loan is located within the SFHA required for the residential detached structure.
the principal structure is not located in an SFHA, but a non-residential detached structure attached to the land that serves as part of the security for the mortgage loan is located within the SFHA not required on either structure.
the principal structure is not located in an SFHA, but a detached structure attached to the land that does not serve as part of the security for the mortgage loan is located within the SFHA not required on either structure.

Note: Flood insurance is not required on a principal or residential detached structure securing the mortgage loan if the seller/servicer obtains a letter from FEMA stating that its maps have been amended and the structure is no longer in an SFHA.

If the lender determines that a principal and/or residential detached structure is located in an SFHA but the community does not participate in the National Flood Insurance Program (NFIP), the mortgage is not eligible for purchase by Fannie Mae.

Mortgage loans secured by properties in the Emergency Program of the NFIP are eligible for purchase by Fannie Mae with coverage equivalent to the NFIP maximum that is available.

Properties Located in the Coastal Barrier Resources System or in an Otherwise Protected Area

If the property is located within a CBRS or an OPA, flood insurance is required and the lender must verify that the flood insurance policy meets Fannie Mae’s requirements (even if the property securing a mortgage loan is not in an SFHA). If the property is in a non-participating community and a CBRS or an OPA, it is only eligible for delivery to Fannie Mae if it is not located in an SFHA.

Acceptable Flood Insurance Policies

The flood insurance policy must be one of the following:

  • a standard policy issued under the NFIP; or

  • a policy issued by a private insurer as long as

    • the terms and amount of coverage are at least equal to that provided under an NFIP policy based on a review of the full policy issued by a private insurer, and

    • the insurer meets Fannie Mae’s rating requirements as specified in B7-3-01, Property Insurance Requirements for Insurers.

A Policy Declaration page is acceptable evidence of flood insurance.

Note: A mortgagee clause is not required for a Residential Condominium Building Association Policy or an equivalent private flood insurance master policy. For additional information on mortgagee clause requirements refer to B7-3-08, Mortgagee Clause for Property and Flood Insurance.

Determining the Amount of Required Flood Insurance Coverage

The minimum amount of flood insurance required for first mortgages is the lowest of

  • 100% of the replacement cost of the insurable value of the improvements;

  • the maximum insurance available from the NFIP; or

  • the unpaid principal balance of the mortgage loan.

See below for additional requirements for a unit in a project development.

For a property under construction or renovation, the flood insurance coverage must be in an amount equal to the “as is” value of the property. The coverage must be increased, if necessary, following completion of the renovation work to ensure that the coverage meets Fannie Mae's standard coverage requirements. See B7-3-02, General Property Insurance Coverage , and B7-3-05, Additional Insurance Coverage .

Requirements for a Unit in a Project Development

When a mortgage loan is secured by a unit in an attached condo or co-op project and any part of the building improvements are in an SFHA, the seller/servicer must verify that the HOA or co-op corporation maintains a master policy of flood insurance. The premiums must be paid as a common expense, unless indicated otherwise in the table below.

The following table provides additional requirements based on the project type.

Project Type Coverage Requirements
Condo The seller/servicer must verify that the HOA maintains a Residential Condominium Building Association Policy or equivalent private flood insurance coverage for a condo building consisting of attached units located in an SFHA. The only building that must be verified is the subject unit’s building.

Fannie Mae does not require evidence of a master flood insurance policy, provided the unit owner maintains an individual flood dwelling policy that meets the coverage requirements of this Guide for the following mortgage loans or project types:
  • DU Refi Plus and Refi Plus loans,

  • high LTV refinance loans,

  • units in a two- to four-unit project, and

  • detached condo properties.

A master flood insurance policy maintained by the project, must cover the subject unit’s

  • entire building including each of the individual units in the building; and

  • all of the common elements and property, including machinery and equipment that are part of the building.

The coverage amount for the building must be at least equal to the lesser of

  • 80% of the replacement cost, or

  • the maximum insurance available from NFIP per unit (which is currently $250,000).

If the master flood insurance policy meets the minimum coverage requirement of 80% replacement cost, but the per unit coverage amount does not meet the requirement for mortgage loans secured by one- to four-unit properties, as described above, the unit owner must maintain a supplemental policy for the difference.

If the commercial space of an attached condo is over 25%, coverage provided by the General Property Form (or equivalent coverage) is insufficient. A private policy will need to be maintained by the HOA or a private policy in conjunction with a General Property Form policy (or equivalent coverage) to equate to coverage requirements for projects eligible for a Residential Condominium Building Association Policy.

The contents coverage must equal the lesser of 100% of the insurable value of all contents owned in common by the association members or the maximum amount available through the NFIP.

For additional information on named insured requirements that apply to flood insurance policies, refer to B7-3-04, Property Insurance Coverage for Units in Project Developments .
Co-op

The co-op corporation must have flood insurance coverage for each building that is located in an SFHA. The master policy must cover the building and any common elements and property (including machinery and equipment) that are owned in common by the shareholders of the co-op corporation. The coverage amount for the building must be at least equal to the lesser of 100% replacement cost, or the maximum coverage available under the applicable NFIP program.

For additional information on named insured requirements that apply to flood insurance policies, refer to B7-3-04, Property Insurance Coverage for Units in Project Developments .

PUD

The same flood insurance that is required for one- to four-unit properties is required for an attached or detached individual PUD unit. See above for the required amount of coverage. A stand-alone flood insurance dwelling policy must be maintained to meet these requirements.

Maximum Allowable Deductibles Requirements

The deductible must be no greater than the NFIP maximums based on the property type, unless state law requires a higher maximum deductible amount. This requirement applies to both NFIP and private policies.

Delivery Requirements

The following table describes the special feature code requirements applicable to flood insurance.

Structure Location and

Status of Flood Insurance Coverage
Special Feature Code
  • Some part of a principal and/or residential detached structure is located in an SFHA, and

  • Flood insurance coverage is in place on the principal and/or residential detached structure.

SFC 170 Flood Insurance — Special Flood Hazard Area
  • No part of a principal or residential detached structure is located in an SFHA, but

  • Flood insurance coverage is in place on the principal and/or residential detached structure.

SFC 175 Flood Insurance — Not a Special Flood Hazard Area
  • No part of a principal or residential detached structure is located in an SFHA, and

  • No flood insurance coverage is in place on the principal or residential detached structure.

Note: In addition to these criteria, this special feature code also applies if there is a non-residential detached structure attached to the land for which any part is in an SFHA.

SFC 180 No Flood Insurance

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2018-09 December 04, 2018
Announcement SEL-2016–03 March 29, 2016
Announcement SEL-2014–16 December 16, 2014
Announcement SEL-2014–10 July 29, 2014
Announcement SEL-2013–07 September 24, 2013
Announcement SEL-2013–03 April 9, 2013
Announcement SEL-2012–07 August 21, 2012
Announcement 09-28 August 21, 2009