Not a dumb question at all. I have seen many instances where insurance agents tell customers the wrong thing and it makes life difficult. To answer your question, nothing has technically changed. You are still (and will be) allowed to require flood insurance at the time of the loan and aren't required (its optional) to wait until the construction gets to the point of being a dwelling.
There are a number of proposed FAQs that are not yet final, but the 7/6/2020 FAQs seem to answer your question. Proposed Question Construction-4 says this:
"CONSTRUCTION 4. WHEN MUST A LENDER REQUIRE THE PURCHASE OF FLOOD INSURANCE FOR A LOAN SECURED BY A BUILDING IN THE COURSE OF CONSTRUCTION THAT IS LOCATED IN AN SFHA IN WHICH FLOOD INSURANCE IS AVAILABLE?
Under the Act, as implemented by the Regulation, a lender may not make, increase, extend, or renew any loan secured by a building or a mobile home, located or to be located in an SFHA in which flood insurance is available, unless the property is covered by adequate flood insurance for the term of the loan. The NFIP rules provide lenders an option to comply with the mandatory purchase requirement for a loan secured by a building in the course of construction that is located in an SFHA by requiring borrowers to have a flood insurance policy in place at the time of loan origination. Such a policy is issued based upon the construction designs and intended use of the building. A borrower should obtain a provisional rating (available only if certain criteria are met) to enable the placement of coverage prior to receipt of the Elevation Certificate (EC). In accordance with the NFIP requirement, it is expected that an EC will be secured and a full-risk rating completed within 60 days of the policy effective date. Failure to obtain the EC could result in reduced coverage limits at the time of a loss. (See NFIP Flood Insurance Manual)."
The preamble to this proposal expands on this by saying:
"Proposed Q&A Construction 4 would address when a lender must require flood insurance in connection with a loan secured by a building in the course of construction and would be revised to incorporate the NFIP's change in policy regarding the 30-day waiting period. In particular, the Agencies propose that if a lender requires a borrower to have flood insurance in place at the time of loan origination, a borrower should obtain a provisional rating based on the construction designs and intended use of the building to enable the placement of coverage prior to receipt of the Elevation Certificate (EC), based on FEMA guidance. The proposed Q&A would state that in accordance with the NFIP requirement, it is expected that an EC will be secured and a full-risk rating completed within 60 days of the policy effective date. Under the proposed Q&A, failure to obtain the EC could result in reduced coverage limits at the time of loss. Alternatively, if the lender requires the borrower to have flood insurance in place before the lender disburses funds to pay for building construction, the lender should have adequate controls in place to ensure the borrower obtains flood insurance no later than 30 days prior to disbursement of funds to the borrower due to FEMA's removal of the 30-day waiting period waiver."
Adam Witmer, CRCM
All statements are my opinion, not those of my employer, and should not be taken as legal advice.www.compliancecohort.com