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Flood Zones: The A’s to the V’s

“All right!” You’ve worked hard and saved your money, watched your spending, paid your bills on time, and now it’s “your turn.” Your turn to chase the dream. Your turn to get that home you’ve been dreaming of getting for so long. You’ve spoken to your lender and given them all paperwork that they’ve asked for and – “Boomshki!” – you are pre-approved to buy your first home.

Feel the excitement! You’ve done it! You have arrived!

Now, you’ve found yourself an agent to show you homes, give you advice, and keep you protected. You let them know the area you want to live, the number of bedrooms and baths, the views you want to see, schools you want to be near, along with many other items you are looking for. Your agent has been sending and showing you homes weekly; however, while you are looking on your Zillow app one day, you find it!

There it is! She’s beautiful, everything you’ve wanted, and she is sitting 20 feet from a beautiful stream and less than a stone’s throw to the beach. What more could you ask for? Paradise! At long last! And it’s just at the tip of your price range.

“Honey, looook! We can afford it! Get the agent on the phone – now!”

You explain to your agent about the house. They see that, yes, it is still active, it is in your price range, and the criteria range you’ve been looking at. Stop! Your agent points out a couple key factors that might need to be addressed before continuing.

They notice the “Days on Market” are very high for a beautiful house like this and it’s been on and off the market many times. Something might be wrong with it, and upon deeper investigation, uncovers that this particular house has been in escrow multiple times but has fallen through each time. They point out to you that this particular house, although beautiful, is located in the flood zone: AE, which according to FEMA, the Federal Emergency Management Agency, is in an area that is a “special flood hazard” area.

What does that mean?

Well, that means flood insurance is mandatory in this area, along with any other areas located in the zones starting with A or V. Although there are certain ways to get past paying flood insurance, like raising your house to a certain height and getting an Elevation Certificate, this house has no Elevation Certificate, and that is not an option at the time.

Because your heart is set on owning this house, you decide to place an offer anyway and it is accepted. However, after going into escrow, making your deposit, and paying for your inspection, your lender gets back to you with some bad news. You do not qualify for the home anymore!

“WHAAAAT?! How could this be? We were pre-approved?”

Well, the simple breakdown of the loan accounted for all your income, your bills, loans, assets, and that gave you a price point that you could afford safely. When you factored in that you were gonna do a loan with 3% down and were gonna pay for P.M.I. (Private Mortgage Insurance), which is typically paid when you don’t have a large enough down payment equal to 20% and is adjusted based on your credit score as well (unless you are VA, which don’t have to pay for P.M.I.), along with having to pay for flood insurance, which is very costly, the premiums, interest, taxes, and other insurances, along with closing costs, you stretched yourself too far and have exceeded your loan amount.

Unfortunately, in Hawaii, we have many areas that are deemed flood zones. When looking at homes, be sure to locate the part in the MLS that says DOM, Flood Zone, and look into the special remarks and Disclosures. Sometimes these items can save you a big headache and can tell you more than the picture ever will.

In the home shopping process, I have found that a couple of words can be worth far more than any picture!

Finding a good agent is key to finding a good home, safely! However, an agent can only do so much and most times will not, and should not, steer you away from your dream home – unless there is something seriously wrong with it. They will give you advice and can make suggestions, do their best to negotiate, and formulate a backup plan and keep you up-to-date with the process as it moves along, as well as many other duties not listed here. However, that being said, when the loan gets involved, it is sometimes out of their hands, so be sure to listen to your agent and always keep your loan officer up-to-date as well, so there are no unexpected shortfalls.

More Information

If you would like to see about getting pre-qualified or pre-approved with one of my preferred lenders, or shop for homes on Oahu, please feel free to contact me and I will be more than happy to guide you on your path to safe homeownership.

Aloha, and Happy Safe Shopping!

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