As the sale progresses, I'm learning more. I just got a document from
the bank that had me sign off on the flood insurance. It stated that I
need to have flood insurance for the replacement value of the home OR
to the maximum allowed (typically $250,000.) If the replacement value
is greater than the maximum then they recommend I seek out private
insurance for the non-insured portion of the home.

Thanks for all the comments.



nonbuyer wrote:
I'm considering buying a home that requires flood insurance where the
mortgage would be around $300,000.

Let's say the replacement value of the house is above $250,000 for
arguments sake.

My question is how would a bank allow the mortgage since the
replacement value of the house is less than the coverage amount of
$250,000 as specified by FEMA? Would their be risk to the bank that
the house washes away and presents a deficit?

The home replacement in my case is below $250,000 however. My concern
is that upgrades to the property and future increases in home
values/construction costs would eventually generate a situation where
the house is not fully covered for me, the homeowner. The bank would
be covered by the mortgage in my case BUT what if I tried to sell the
property? The next owner may not be able to get a mortgage because of
the coverage gap and thus my home value would be depressed.

Comments are appreciated!