The construction option gives you the ability to close the loan without the policy in hand on initial construction. BUT you cannot advance funds for upward construction until you have the policy in hand. This means you would need to have a process in place to monitor the loan and prevent draws until you have a policy in place. You would be allowed to fund the purchase or the lot and the pouring of the footers, but that is it.
We ONLY allow this option on an exception basis, and I have to approve it. I only approve it when it is very apparent that the structure will be built outside the SFHA requiring insurance (ie only a teeny, tiny sliver of the lot is in the SFHA and the house is going to be built on the larger portion outside the SFHA). We still monitor the line, get inspections, and freeze draws after footers until a foundation survey has been obtained and compared to the flood maps. We also have a very strong process to monitor this and I don't approve very much (I've only approved 3 in the last 5 years). If the lot is 50/50 in or there is any doubt, it must have insurance before closing.
If you do not have a good process to prevent draws, do NOT invoke this option.
I can't herd the cats anymore, so I just set up the electric fences and let them fry when they stray out of bounds.