What questions should I ask about flood and disaster risk when buying a house?
Natural disasters can be devastating when they happen to your home. They can also cost money over time. You have the right to ask the current property owner questions about the risks of floods and other disasters before you make an offer.
Asking questions can save you headaches at closing—and beyond. You could avoid surprise costs, damage, or insurance problems. Many states require home sellers to give buyers information about the condition of their property. It is also a good idea to add an inspection clause to your offer. An inspection clause means your offer goes ahead only if an inspection shows the property is in acceptable condition.
Information and statistics about the risks of natural disasters are publicly available. You can look up the risks connected to a particular property on some real estate sites. The government and nongovernment sites below can also help. However, keep in mind that CFPB does not promise that nongovernment information sources are always accurate:
It is a good idea to ask questions and look at several different sources as you make decisions about climate-related risks.
Does buying this home mean I need to have flood insurance? How much does that cost?
Taking out a mortgage for a home in a designated Special Flood Hazard Area (SFHA) generally means you have to have flood insurance. The cost for flood insurance is extra, because it is typically not covered by standard homeowner’s insurance. According to FEMA (Federal Emergency Management Agency), Special Flood Hazard Areas have at least a one in four chance of flooding over a 30-year mortgage. Flooding occurs outside these areas too. This means flood insurance might be a good idea, whether or not the home is in a designated area.
Sellers must inform the new owner of the requirement to have flood insurance. The current homeowner might be paying a lower cost for flood insurance than you would pay as a new owner of the home. That’s because you, as a new homeowner, must pay the full risk-based cost according to FEMA’s standards, even if the current owner is paying less because of limits on annual rate increases.
FEMA maintains information about flood insurance. You can visit floodsmart.gov to learn more.
Has the home previously been damaged by a natural disaster, like a flood or wildfire? What was the damage and how was it fixed?
Past damages are a sign that the home is in a higher-risk area. This means damage is more likely to occur in the future. Once the property owner tells you about the damage, make sure you and your building inspector examine the repairs. Improper repairs can cause problems in the future.
Past insurance claims are also likely to raise the cost of insuring the property. If an owner of the home received federal disaster assistance in the past, a new owner could be required to buy and maintain flood insurance to stay eligible for future federal disaster assistance.
What steps have been taken to reduce the likelihood of damage from natural disasters to the property?
What insurance coverage does the home currently have? Does the current coverage tell you that the homeowner has had trouble finding a policy?
People who own high-risk properties often struggle to buy affordable coverage from insurance companies. Owners might turn to state-operated Fair Access to Insurance Requirements (FAIR) policies or force-placed plans as a last resort. If you find out that the home is insured through a state FAIR plan or force-placed plan, it means you could have trouble finding private, low-cost homeowner’s insurance. Homeowners without mortgages sometimes choose not to have insurance if coverage is expensive. This is called self-insuring and could also be a sign that it might be hard to find an affordable policy.
You can also ask the seller whether their homeowner’s insurance has been nonrenewed in the past five years. Nonrenewals are common in certain areas. They are not always a sign of increased risk, but they can indicate that insurance may be harder to find or more expensive.
What is the monthly cost of utilities?
An estimate of the costs of utilities can give you a sense of the energy efficiency of the home, along with a realistic expectation of what you could pay. As weather is becoming more extreme, utility costs such as cooling are increasing.
Has the home ever had an issue with the quality, cost, amount, or source of water?
Homes in dry areas could have limited access to water, or water service could be expensive. Variations in yearly rainfall can make access to water more difficult. Water can become polluted. And, homes in coastal areas might have problems caused by contamination from salt water.