NFIP Mandatory Purchase Requirement

The Mandatory Purchase Requirement is a federal regulation requiring property owners in designated high-risk flood areas to purchase and maintain flood insurance as a condition of receiving federally backed financial assistance, such as mortgages or disaster aid. This requirement is enforced under the National Flood Insurance Program (NFIP) and applies to properties located in Special Flood Hazard Areas (SFHAs) as defined by the Federal Emergency Management Agency (FEMA).

Who Must Purchase Flood Insurance?

Flood insurance is required when all of the following conditions apply:

• The property is located within an SFHA (Zones A or V) on a Flood Insurance Rate Map (FIRM).
• The property secures a loan from a federally regulated lender, such as a bank or credit union.
• The loan is federally backed, such as those issued or guaranteed by FHA, VA, or USDA.
• The property owner receives federal disaster assistance, including grants from FEMA or loans from the Small Business Administration (SBA).

Important Features

Loan Origination and Compliance

Lenders must verify whether a property is in an SFHA before issuing a mortgage. Lenders that fail to enforce the mandatory purchase requirement can be penalized by federal regulators.

• If the property is in an SFHA, the lender must require the borrower to obtain flood insurance before closing.
• Coverage must remain in effect for the life of the loan and be renewed annually.

Amount of Coverage Required

The minimum required flood insurance coverage must be at least equal to the lesser of:

• The outstanding principal balance of the loan;
• The maximum coverage available under the NFIP ($250,000 for residential buildings, $500,000 for non-residential buildings);
• The replacement cost of the structure.

Force-Placed Insurance

If a borrower fails to maintain flood insurance, the lender has the right to purchase a policy on their behalf, commonly referred to as force-placed insurance.
Force-placed insurance is typically more expensive than policies purchased voluntarily by the borrower.

Property owners who fail to maintain flood insurance may become ineligible for federal disaster assistance in future flood events.

Exemptions and Special Cases

• Properties Outside SFHAs: Properties located outside of high-risk flood zones are not subject to the mandatory purchase requirement, though lenders may still require flood insurance as a condition of the loan.
• Certain Loans: Home equity loans, lines of credit, and loans that do not secure a building (such as land-only loans) may not require flood insurance.
• Condominiums and Cooperatives: Unit owners in multi-family buildings may be covered under a master flood insurance policy if the association maintains adequate NFIP coverage.

Impact of Flood Map Changes

If a property is newly mapped into an SFHA due to floodplain changes, the mandatory purchase requirement may force the homeowner to purchase a flood policy when did not have one previously. This accounts for the Map Revision exception to the 30-day Waiting Period and the Newly Mapped statutory discount, which are not granted to existing policyholders who voluntarily purchased NFIP coverage.

Additional References

• Mandatory Purchase (FEMA.gov)
• Congress Should Consider Updating the Mandatory Purchase Requirement (GAO Article, 7/30/2021)
• NFIP's Mandatory Purchase Requirement (PDF Report, March 2005)

This page contains information about the NFIP. Find more NFIP Resources.