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Do VA Loans Require Flood Insurance?

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Some borrowers want to know whether there’s a requirement for hazard insurance with VA home loans. Does the borrower have to apply for added protection from fires, floods, or other issues?

A quick look at VA loan rules covering the hazard insurance issue, as printed in the VA Lender’s Handbook, Chapter Nine, reveals a requirement for the lender to insure the home is protected.

Chapter Nine states, “The lender is responsible for ensuring that hazard insurance is obtained prior to loan closing, and maintained for the term of the loan. It must be of a type or types and in an amount sufficient to protect the property against risks or hazards to which it may be subjected in the locality. Generally, the type(s) and amount of insurance coverage customary in the locality will satisfy this requirement.”

When applicable, the borrower may be required to obtain the right type of hazard insurance with the following guidelines from Chapter Nine:

“Policies must provide that all amounts payable, including unearned premiums, shall be payable to the holder, or to a trustee or other person for the holder. All policy payments received for insured losses must be applied to the restoration of the security or to the loan balance.”

Floods are among the most common types of hazard in some areas. VA loan rules address flood insurance specifically in the same chapter. “The lender is responsible for ensuring that flood insurance is obtained and maintained on any building or personal property that secures a VA loan if the property is located in a special flood hazard area (SFHA), as identified by the Federal Emergency Management Agency (FEMA).”

These flood insurance requirements are in effect for the lifetime of the loan, “and includes insuring any secured property that becomes newly located in a SFHA due to FEMA remapping.”

Borrowers and lenders alike should be aware that according to the VA, an appraisal doesn’t necessarily change hazard insurance requirements. “The VA appraiser’s opinion on whether the property is located in a SFHA does not relieve the lender from responsibility for ensuring flood insurance coverage on a property which is in fact located in a SFHA.”

Some borrowers will ask what happens to the VA loan if a home is located in a Special Flood Hazard Area but flood insurance cannot be obtained. The VA addresses this subject specifically, stating, “VA cannot guarantee a loan if the security is located in a SFHA and flood insurance is not available.”