VA Loans and Flood Zones
A reader question came to us asking about the rules for VA loans and flood zones: “Is it true that it is not possible to get a VA loan if the appraiser indicates the property is in a flood zone, even though the area has not flooded in hundreds of years?”
This question is fairly general and there are many things that can affect the eligibility of a property located in a flood zone. In some cases, a borrower may need to get hazard insurance for a property that is approved for a VA mortgage where there’s a danger of flooding, but there are strict VA loan rules for such instances.
For example, the VA Lender’s Guide states that no property may even be appraised for a VA mortgage (let alone be approved for one) if the home is located in a Special Flood Hazard Area and one or more of the following circumstances apply:
- The property is proposed/under/new construction with “elevation of the lowest floor below the 100 year flood level”.
- Flood insurance is not available.
The VA Lender’s Guide also states a property may not be appraised when it is in an area subject to regular flooding, the home is located in a Coastal Barrier Resources System area or in an area prone to earthquakes, landslides, or has a “history of unstable soils.”
As you can see, some of these regulations are subject to interpretation, and others are not. The VA appraiser has to make a judgement call when it comes to which properties may qualify and which ones do not, IF the home makes it to the appraisal stage. In cases where the home is located in a Special Flood Hazard Zone or Coastal Barrier Resources System, it may not even make it to the appraisal stage based on what is known about that area by the lender or the VA.