Scenario:

A borrower purchasing a home in a flood zone. The Flood insurance company, the seller, and the buyer (our borrower) are all in agreement that the buyer can assume the seller’s active flood policy for the remainder of the term (6 months), which would have significant premium savings for the borrower. This would at least satisfy the borrower having the necessary coverage in force at time of origination, and then borrower would renew the policy in 6 months, for the standard 12 month term.

Question 1: Does anyone know of anything within the flood rules that requires a 12 month policy for new loans in a flood zone, or would this 6 month policy be OK to assume from the seller (assuming it meets all the other flood requirements)?

Question 2: If there is no requirement of a fully paid 12 month policy up front, I think the issue would then be how to properly escrow. Could we escrow 2/12th premium for the next 6 months, so we are escrowing a full year’s worth over the next 6 months? Then at time of policy renewal in 6 months, have a full 12 months’ worth of escrow.

And I did find a thread that stated assignment of a policy is OK under NFIP, and found that in the Apr 2021 NFIP manual. So I guess only question 2 is relevant, of how to properly escrow with an assigned policy.

Since in six months the full policy amount for the following 12 months will be due, I am not sure how that is any different from when you refinance a loan that only has six months to go to the next homeowner's insurance payment or property tax payment from an escrow perspective.