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Transaction Check: NFIP Flood Rates to Change on Oct. 1

Buyers who close after Oct. 1 and need flood insurance should understand upcoming flood insurance changes. The new rating system is property-specific and not yet published, but 12% of Fla. homes will see at least a $120 yearly increase. Buyers may be able to assume a seller’s policy and rates, however.

ORLANDO, Fla. – The yearly rates for flood insurance policies under the National Flood Insurance Program (NFIP) will change on Oct. 1. For most Florida homes, rates will be roughly the same as they are now; for about 1 in 5 Florida homes, they’ll go down.

However, 7.8% of Florida homes will see an increase of $120 to $240 more per year, and 4.2% of Florida homes will be charged $240 or more per year. FEMA calls the new program Risk Rating 2.0: Equity in Action.

The problem may directly affect current homebuyers closing after Oct. 1 for two reasons: It’s not yet clear whether a specific property’s rate will go up, down or stay the same – and it might not be clear until after Oct. 1. The issue is evolving, but sellers should stay current on the changes if they plan to close after Oct. 1 and their lender requires flood insurance on the property.

Current NFIP rates are not grandfathered in. However, a current home seller’s policy is assumable by the buyer, providing the seller agrees to do so. In some cases, private flood insurance coverage may be an option.

Assuming a flood insurance policy

According to the National Flood Insurance blog, the seller must transfer the current flood insurance policy to the buyer. In most cases, the seller receives a premium refund for their yearly payment after closing; in this case, the money gets settled at closing. However, the arrangement can benefit sellers if they find it easier to complete a transaction after buyers find flood insurance costs challenging.

For buyers, it often means saving money, though that might not be true for the 19.8% of Florida homes that will see a decrease in their yearly flood insurance fees. It also means the buyer can avoid the “hassle of meeting underwriting requirements to purchase a flood insurance policy, which can help a property sell faster.”

Note, however: NFIP policies renew yearly, and buyers as well as current homeowners will eventually pay the new rates after the Oct. 1 NFIP changes.

For more information on assuming a seller’s flood insurance policy, read the blog, The Flood Policy Assumption Process.

PDF overview of Risk Rating 2.0’s impact on Florida is also posted on FEMA’s website. According to FEMA, the percentage of Florida properties getting higher or lower rates is:

  • 19.8%: Lower flood insurance costs
  • 68.1%: Either no change or a yearly increase less than $120
  • 7.8%: A premium increase between $120 and $240 per year
  • 4.2%: A premium increase greater than $240 per year

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