What Is a Flood Certification Fee in Real Estate?
Demystify the flood certification fee. Discover its purpose, process, and cost implications in real estate property purchases.
A flood certification fee is a standard closing cost in real estate transactions involving a mortgage. Borrowers pay this fee to confirm if a property is in a designated flood zone. It ensures compliance with financial and regulatory requirements before a loan is finalized.
Understanding the Fee
The flood certification fee identifies a property’s flood risk, particularly if it’s within a Special Flood Hazard Area (SFHA). Federal regulations mandate that lenders assess this risk for all properties securing federally backed mortgages. Lenders use this certification to comply with the Flood Disaster Protection Act, which requires flood insurance for properties in SFHAs. The determination is based on official flood maps produced by the Federal Emergency Management Agency (FEMA).
The Process of Flood Certification
The process of obtaining a flood certification typically begins after a mortgage application is submitted. The lender usually orders this certification through a specialized third-party flood determination company. These companies utilize the property’s address and legal description, cross-referencing them with FEMA’s official flood insurance rate maps (FIRMs) and other relevant data to issue an official flood zone determination, indicating whether the property is in an SFHA or not. This determination then dictates whether the borrower will be required to purchase flood insurance as a condition of their loan. The entire process is usually completed well before the loan closing, allowing sufficient time for any necessary flood insurance policies to be secured.
Fee Structure and What It Covers
The flood certification fee is generally a one-time charge paid by the borrower at the loan closing, typically ranging from approximately $10 to $50 and covering the administrative costs associated with obtaining the official flood zone determination. Beyond the initial assessment, the fee often includes ongoing monitoring of the property’s flood status throughout the life of the loan. This monitoring ensures that if FEMA redraws flood maps or changes a property’s flood zone designation, the lender is promptly notified. It is important to note that this specific fee is distinct from the cost of flood insurance premiums, which are separate, recurring payments for the actual insurance policy. The flood certification fee is considered a non-negotiable service charge, as it covers a mandatory regulatory compliance step for the lender.