I have a mortgage loan for $500,000. The maximum amount of flood insurance available under NFIP is $250,000. How can this be handled?

I believe if the loan amount is more than the maximun coverage available, then the best you can do is to require the 250,000 coverage in flood insurance. Since this is a residential deal, then 250,000 is the max flood coverage you can get. 500,000 is the maximum coverage on a non-residential property.

Then the question becomes - do you want to make a loan on an underinsured property in a flood zone? I would be looking for some other significant assets that the borrower may use to compensate.

I was under the impression that a customer could get more insurance but it wasn't required by FEMA.

I agree with rl here. You are going to require hazard insurance in the amount to cover your loan in case of fire, tornado, etc., if the home is in a SFHA, why not require enough flood insurance to cover the loan in case of a flood?

Keep in mind the minimum coverage required is the lesser of:

· The outstanding principal balance of the loan;
· The insurable value of the structure; or
· The maximum amount of insurance available under the Program.

There is nothing saying you can’t require the borrower to obtain additional coverage through a 3rd party vender. Look on FEMA’s web page for a list. I think, but not sure, they are listed under WYO companies.

You can require the borrower to purchase FI for more than the FEMA's $250,000, but it will be very expensive as it won't be FEMA subsidized.