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Any large increase in flood insurance will have a large, negative impact on prices for homes in a flood zone. The exact amount of the decrease in price will depend on how the risk is valued and the increase in insurance prices. Expect the price to be discounted in step with the total cost of the increased flood insurance and perhaps even a little bit more due to uncertainty. It's unclear if or when the government will finally cave and let flood rates properly reflect flood risks, so there may not be a large premium increase...until there is.
This is a classic example of the government encouraging bad behavior by offering subsidies that it shouldn't be offering. The only people who should live in a flood zone are those that are economically able to afford the risks associated with floods. Lowering the effective costs of living in a flood zone without lowering the real costs (by government subsidy) has the effect of encouraging development that is not economically viable. Considering that flood zones are often also ecologically important areas, there's also likely an environmental cost to this policy, as well.
If you're a normal prospective first time buyer stay far, far away from houses in a flood zone that require flood insurance. You will have a hard time correctly accounting for the risk, increased flood insurance premiums, and possible loss of value associated with the end of insurance subsidization. The exception would be if you're extremely wealthy and want to live by the ocean or in another flood zone and don't have to worry about costs or possible resale.
Good advice for most states. But I'd like to point out that the OP lives in RI. We are "the Ocean State" and the median elevation- I believe- is 400 ft above sea level for the entire state. Our highest point ( a hill) is 810 ft and much of our state is much closer to being sea level.
It is difficult to get away from settled areas here where many houses are in the new FEMA flood zones and many of our best neighborhoods are in coastal zones, so the I think the OP is very right to be cautious. OP, can you share what town you're looking to buy into?
I'm looking in all of upper RI and southern MA right now and am literally all over the map. I work from home so the town is less important than a good deal.
I've always wanted to live on the ocean even if in just a 500 sq ft home. But I also want it to be a good investment and not lose money if I move in 5 years. Rather not lose money ever frankly!
I'm hoping to move to a sunnier and warmer climate in 2-5 years and be able to use the small place on the ocean as a summer place for me and rent out in winter.
Weren't there subsidies due to expire in 2015? For some reason I thought this was a key year somehow.
Never, is my interpretation based on the last law that was passed. Or until congress enacts a new law. However, I don't have a subsidy so I don't track the rules as much as someone that has one.
A second home if it maintains continous flood insurance when converted to a Primary homes falls back to the grandfathered cheap rates. Which is good news when you sell or retire.
How about if you purchase a subsidized home from someone that had flood insurance, but it was for a rental home/investment home?
Can you get subsidized flood insurance if you plan to live in the home? Will it be at the fully subsidized rate, or the last rate that was on that investment home?
How about if you purchase a subsidized home from someone that had flood insurance, but it was for a rental home/investment home?
Can you get subsidized flood insurance if you plan to live in the home? Will it be at the fully subsidized rate, or the last rate that was on that investment home?
if you buy a home used as a vacation, rental or second home home with flood insurance that you plan on living in full time yes it falls back to subsidized rate.
Also as an added bonus if it was a second home it most likely never used its once in a lifetime FEMA payout so if a primary and you go naked you got Uncle Sam to help out for up to 31,900 in a crisis.
BTW vacation homes still have Grandfathering in effect so they get the low rates, BUT they rise 25% till full risk rate. I looked at one beach bungalow that was a pre-firm grandfathered home built in 1939 last year had $450 a year full flood. Risk rating it should be 3k, so new owner as a second home gets a mandatory 25% increase till it hits 3k but starting at $450 it is a long long runway.
But when insurance gets too high on that bungalow you can either move in full time or sell it to someone who will use it as a primary and rates will fall a lot. Primary subsized rates only rise at a max of 13% a year. Compounding is a *****. $450 at 13% for ten years is a world of difference between $450 at 25% for ten years
Home for sale. $450K, comparable to the neighborhood, appropriate updates, nice schools, close to employment centers, etc., etc. Should be a slam-dunk. HOWEVER, it is on the edge of the neighborhood and the newly redrawn flood zones in 2012 touches on the corner of the house due to the presence of a nearby creek. The house or property, mind you, has NEVER been subjected to a flood, even when large swathes of Atlanta were underwater in 2009. But when they redrew the flood zones -- BAM! -- there they were.
Flood insurance has been quoted at $5,000. PER YEAR. For a house that isn't on the water, and has never even had a wet basement.
Agent tried for 18 months to sell the house -- the minute folks heard about the flood insurance -- especially the cost! -- they fled. Basically, you're talking over $400 a month to insure for something that has never happened. They'd be better off getting insurance for meteor damage! The house has been reduced several times, and is now mid $300's -- a major hit, and still no takers.
If you can avoid flood insurance, then I would strongly encourage you to do so. You might not care -- but you can bet that anyone you sell to in the future is going to care.
BTW vacation homes still have Grandfathering in effect so they get the low rates, BUT they rise 25% till full risk rate. I looked at one beach bungalow that was a pre-firm grandfathered home built in 1939 last year had $450 a year full flood. Risk rating it should be 3k, so new owner as a second home gets a mandatory 25% increase till it hits 3k but starting at $450 it is a long long runway.
My interpretation of the 25% rule for non-primary is it's a 4 year incremental period for non-primary - you pay 25% of the full-rate the 1st year with 25% of the full rate added each year. So year 1 it's 25% of full-rate, year 2 it's 50% of full rate, year 3 it's 75% of full rate and year 4 it's the non-subsidized full rate.
Is there any official documentation from FEMA that indicates 25% of the current (lower) rate or is it 25% of the new(higher) rate? I can't find anything now but thought I read something before that indicated it's 25% of the NEW(higher) rate.
I'm in Florida, on the SW coast, and flood insurance has been and will continue to be, a major factor for buyers. I predict we will see a lot of the 60's and 70's homes bulldozed and rebuilt in the next 10 years. Most of these homes are under $300k, so who on earth can afford $5-10k a year on flood insurance?!
I actually met a REAL PERSON, whose flood insurance on a $500k house was $25,000 a year!!!!!! Seriously! They sold the house to a cash buyer and ran. It was on a bay.
The other big thing that deters buyers is wood frame construction. Dwelling coverage just about doubles by going from concrete block to wood frame in our area.
If you can avoid flood insurance, then I would strongly encourage you to do so. You might not care -- but you can bet that anyone you sell to in the future is going to care.
This.
I backed of an investment house when I found out the house was in a 100yr flood plain. Wasn't on the disclosure! In Houston any renovation worth more than 50% of the city value for taxation purposes OF THE STRUCTURE ONLY (normally much, much lower than the market value of the property) will not get permitted unless the foundation is raised above a base elevation.
Also, any additions must have the new foundation above the base elevation
So, we would have been capped at $40k reno work on that property or tear it down.
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