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The Hazards of Home Loans: Flood Zones
By Jonathan Haeber
jonathan.haeber@californiamortgagerate.com
California Mortgage Rate Columnist
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Countrywide, people are buying homes in disaster-prone areas. It's a fact of life that, no matter where you live, your home may end up in the path of a disaster. Before you take out a home loan, you should analyze the risks of living there. This week, we'll talk about floods.
The Home Loan 'Commitment'
A home loan is a huge commitment. It means giving as much as 30-45 years of your life away to creditors. Even though lenders will often require you to take out a flood insurance policy, it is still a good idea to look at the risks of your home mortgage. Living in a flood-prone area also means paying higher insurance premiums, which will obviously eat away at your monthly income.
While first touring the home, ask the agent point-blank if the home resides in a flood hazard zone. They will know right away what you mean. If the agent answers "yes," then you should find out what the flood insurance premium will cost you and the danger of future flooding. If the home does reside in a flood-prone area, you should also consider whether or not you're willing to take the risk.
The mortgage may not be approved if you're using a government home loan or assistance program-- such programs usually stipulate that your home can't be in a flood zone.
The Purchase Agreement is Your Friend
Above all, carefully read the Purchase Agreement for your home. It is often required by countrywide law that sellers list all natural, industrial, and environmental hazards in the purchase agreement. It will include a section that describes the specific flood hazards for the home.
Before signing the Purchase Agreement, negotiate with the agent to put an "all-inclusive weasel clause" in the contract. This clause will allow you a period, usually 10 days, to review the agreement with your attorney or financial advisor. This gives you ample time to investigate potential natural hazards and check the insurance premium rates.
About the Author
Jonathan Haeber recently closed escrow on his first home; it resides out of a flood zone, thank goodness. He works as a full-time copywriter for Discovery Channel Store.
Irwin, Robert "Tips and Traps When Buying a Home" McGraw-Hill Professional. Pg. 105.
Bruss, Robert J. "Customize that 'Standard' Home Purchase Contract. LA Times.
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