Changed Date

September 15, 2004, Change 4

This section has been changed to create subsection lettering.

a. General Requirements

The lender is responsible for ensuring that hazard insurance is obtained prior to loan closing, and maintained for the term of the loan.  It must be of a type or types and in an amount sufficient to protect the property against risks or hazards to which it may be subjected  in the locality. 

Generally, the type(s) and amount of insurance coverage customary in the locality will satisfy this requirement.

Policies must provide that all amounts payable, including unearned premiums, shall be payable to the holder, or to a trustee or other person for the holder.  All policy payments received for insured losses must be applied to the restoration of the security or to the loan balance.

b. Flood Insurance Requirements

The lender is responsible for ensuring that flood insurance is obtained and maintained on any building or personal property that secures a VA loan if the property is located in a special flood hazard area (SFHA), as identified by the Federal Emergency Management Agency (FEMA). 

·   The lender/holder’s responsibility extends through the entire term of the loan, and includes insuring any secured property that becomes newly located in a SFHA due to FEMA remapping.

·   The VA appraiser’s opinion on whether the property is located in a SFHA does not relieve the lender from responsibility for ensuring flood insurance coverage on a property which is in fact located in a SFHA

·   Personal property requiring coverage can include a manufactured home and its appliances, carpet, etc. if they secure the loan.

·   The amount of flood insurance must be equal to the lesser of the outstanding principal balance of the loan or the maximum limit of coverage available for the particular type(s) of property under the National Flood Insurance Act.

·   Contact local property insurance agents or brokers, or FEMA regional offices, for current information on maximum available coverage.

Note:  VA cannot guarantee a loan if the security is located in a SFHA and flood insurance is not available.