Can we use the builder's risk insurance amount as the RCV to calculate how much flood insurance is required on a construction loan? Or do we need to use the RCV under the cost approach of the appraisal? Does it matter which one we use?

thanks,

Would not the actual construction contract show you the actual cost to construct (RCV)?

okay thank you,

we will use the construction cost as the RCV to determine the flood coverage.

One more question....

If we get flood insurance in the amount of the construction cost (RCV)during the construction phase and get a hazard insurance policy with a higher amount at completion(we use hazard insurance to get the RCV) during the permanent phase, we will be underinsured for flood coverage, correct? This loan is a combined construction/permanent closing.

thanks,

The replacement cost value is the replacement cost value regardless of what an insurance agent might write a different policy for. Are you saying that immediately upon completion it would cost more to rebuild it if it flooded on day one of the permanent loan? Insurance agents and appraisers will use some sort of formula based on square feet and that is not going to be nearly as accurate than the construction records of that specific building.

I have been searching through +Flood +Construction threads and came upon this one.

We are financing the construction of a large home in a flood zone (not sure why they shose that spot, but...) and the insurance company tells us we have to wait until the structure is complete before obtaining the insurance.

I've never had a construction loan in flood zone before. Is this correct? I would think the builders risk would cover it until completion, but what if it floods after it is under roof and prior to completion?

Also, the homeowner states he only has to provide $250,000 coverage because that's all the legal system states he has to purchase. The cost of construction for this house is $750,000.00. We want to require RCV up to $750,000.00 plus contents. Is this possible?

Also again, would it matter if the property is in a participating community or not?

Any and all assistance will be appreciated.

1) you can and are required to obtain insurance on a home under construction...it operates similarly to builder's risk. The insurance kicks in when the first materials are delivered if they are protected, or once the framing begins.

2) The homeowner is quoting the maximum required through FEMA...what the bank requires could be different. You may have to go through a private insurer, however, to obtain a higher amount.

3) It matters whether or not the property is in a participating community or not on whether or not you can obain NFIP coverage. Otherwise, you would have to find a private insurer willing to cover the property.

Thank you very much for your helping to clarify flood and construction for me.

I built my house in a flood zone - later had a LOMA done. But my point is I purchased flood insurance BEFORE the construction loan was closed. Tell the borrowers to find a new agent.

Thanks David. You know I had forgotten that my very first house that I built was in a flood zone. It was so high up on a hill that I just plain forgot about the flood problem. Oh, and that was many years ago. We had the LOMA completed and moved forward.