HUD expands flood insurance options for Kentucky FHA homeowners in flood zones

Effective December 21, 2022, the Federal Housing Administration (FHA) allows borrowers with FHA-insured single-family mortgages in FEMA-designated Special Flood Hazard Areas (SFHAs) to use private flood insurance policies that meet FHA requirements. Previously, FHA generally limited acceptable coverage to the National Flood Insurance Program (NFIP), reducing consumer choice.

This update matters for Kentucky buyers and homeowners in flood-prone areas because flood insurance is mandatory for FHA loans when the property is in a Special Flood Hazard Area. The change can improve pricing flexibility and coverage options, but the policy still must meet FHA standards for the loan to close.

What changed

FHA will accept private flood insurance for FHA-insured mortgages in SFHAs, as long as the private policy conforms to FHA requirements. Flood insurance remains required for properties in FEMA flood zones; the difference is that qualified private policies may now be used instead of NFIP-only coverage.

Why it matters in Kentucky

• More consumer choice: borrowers can shop NFIP and private options.
• Potential savings: some private policies may price lower than NFIP for certain risks.
• Potentially enhanced coverage: some private products may offer different coverage structures.
• Loan compliance still applies: the policy must meet FHA requirements and be acceptable to the lender.

What lenders must do

As part of implementation, lenders must provide detailed flood insurance coverage information when electronically submitting FHA mortgages for insurance on properties in SFHAs. This supports FHA portfolio tracking and flood risk analysis.

Bottom line

Flood insurance is still mandatory for FHA loans in FEMA Special Flood Hazard Areas. What’s new is that Kentucky FHA borrowers may be able to use qualified private flood insurance instead of NFIP-only coverage, potentially improving affordability and options.

If you are buying or refinancing an FHA loan in Kentucky and the home is in a flood zone, confirm the flood zone early, compare NFIP vs private options, and make sure the policy meets FHA requirements before underwriting and closing.

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NMLS #57916 | Company NMLS #1738461 | Equal Housing Lender.
Not affiliated with or acting on behalf of HUD, FHA, FEMA, or any government agency.
All loan programs are subject to credit approval, underwriting guidelines, and property eligibility.
Flood insurance requirements are determined by FEMA flood zone designation and lender review.

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