Int Q&A – Applicability 15 – When does mandatory flood insurance on a designated loan need to be in place during the closing process?

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Q:  APPLICABILITY 15. When does mandatory flood insurance on a designated loan need to be in place during the closing process?
A:   The Regulation states that a lender cannot “make” a loan secured by a property in an SFHA without adequate flood insurance coverage being in place. A lender should use the loan “closing date” to determine the date by which flood insurance must be in place for a designated loan. FEMA deems the “closing date” as the day the ownership of the property transfers to the new owner based on State law.

“Wet funding” and “dry funding,” which varies by State, refer to when a mortgage is considered officially closed. In a “wet” settlement State, the signing of closing documents, funding, and transfer of title occur all on the same day. By contrast, in a “dry” settlement State, documents are signed on one date, but loan funding and/or transfer of title/recording occur on subsequent date(s). Therefore, in “dry” settlement States, the “closing date” is the date of property transfer, regardless of loan signing or funding date.

For transactions where there is no transfer of property ownership, such as a refinance, and the borrower is purchasing a new flood insurance policy or is required to increase flood insurance coverage, the lender should use the loan’s consummation date as the effective date for the flood insurance policy, as noted above.

It is also important to note that the application and premium payment for NFIP flood insurance must be provided at or prior to the “closing date” since this impacts the FEMA flood insurance effective date and any resulting 30-day waiting period for new policies not made in connection with a triggering event. This application requirement applies for properties located in both dry and wet settlement States. See NFIP Flood Insurance Manual.
This Q&A was included in the Interagency Questions and Answers Regarding Flood Insurance, which were issued on 05/11/2022.  They were published in the Federal Register on 05/31/2022 and may be found here:

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