5 Things to know Before Buying Floodplain Homes in Louisville
You’ve found a home that that your agent says is in a floodplain. The price looks considerably less than others you have been looking at and really want to jump at the opportunity. Slow down – let’s look at what it means first when buying floodplain homes.
Does it mean the house will flood if it is in the 100 year floodplain?
The floodplain is largely statistical in nature. One way to explain it is to say that the probability of the house flooding, based on house elevation and proximity to water, increases by more than 1% each year. The higher the probability, the more risk (there are several risk categories) and ultimately the higher premium.
How much more will it make my monthly payment?
According to FEMA, the average flood insurance premium in Kentucky is $700 per year. That would translate to just over $58 per month. Remember that your quote may be more or less. The lowest Louisville premiums from the National Flood Insurance Program (NFIP) I have seen when buying floodplain homes was $45/mo and the most was $136/mo.
Can’t I just tell them I don’t want flood insurance since the house has never flooded?
Most every lender is going to insist on it but flood insurance is required by an act of Congress for floodplain homes that are financed with a federally-insured mortgage (HUD, VA, Fannie Mae or Freddie Mac Loans).
Is it possible for the floodplain in Louisville to change?
Absolutely, and it does. As Metropolitan Sewer District (MSD) works to avoid flooding issues they are systematically changing the water flow in and around Louisville. As a result, some areas may become in the floodplain that have never been before and other homes may be removed from the floodplain as water is diverted away from their home. Standard mortgages contain a clause that obligates the buyer to buy flood insurance should their property ever be determined to be in a floodplain at a later date. When buying floodplain homes in Louisville, you should note the elevation of the home compared to those around it. It is not uncommon for a home not in the floodplain to be an “island” surrounded by lower-lying homes inside the floodplain. Likewise, it can regularly pertain to one side of the street and not the other. You may be able to obtain an elevation certificate that exempts the home you are buying from being in the floodplain. See if a property is in the floodplain here. Ultimately, FEMA makes the determination. You can go here to dispute a property.
Is buying floodplain homes a good investment?
My traditional counter-question to ask is, “why would you want to buy a floodplain home?”. Whatever the answer, make sure it makes sense to you. If you love the river view, then great! If it is because of the low purchase price, then maybe not. The price is low due to the risk you assume and the additional cost of premiums. On resale, you stand to have to make the same concession which lowers your return on investment. Do things on purpose and with purpose. Unless you have an incredible view that makes it worthwhile, my math says you can afford nearly $11,000 in purchase price instead of paying the premiums on flood insurance.
With Louisville, Kentucky having 77 flooding incidents from 1996-2015, it emphasizes what a big deal it is when deciding about buying floodplain homes. The average claim paid was over $18,000. Flooding can be devastating when it happens and no one thinks it will happen to them. Please take the risk seriously and count the costs of the premiums, the risk, and the potentially lower resale value.