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MORTGAGE KNOWLEDGE CENTER

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  1. Home
  2. Mortgage Knowledge Center
  3. Buying a Home in an Earthquake Zone: What to Conside

MORTGAGE

Buying a Home in an Earthquake Zone: What to Consider

What you'll learn: Learn about what should be considered prior to purchasing a home in an earthquake zone

EXPECTED READ TIME: 4 minutes

June 23, 2023

Buying a Home in an Earthquake Zone: What to Consider

Buying a home in an earthquake zone can be an exciting prospect. Many lovely locations sit on fault lines, but it also requires careful consideration of the potential risks and costs associated with this type of property. Earthquakes are natural disasters that can cause catastrophic damage to homes and other structures, so it is essential to understand the risks involved before any purchase. 

Know the Risks

The first step to follow when purchasing a home in an earthquake zone is understanding the risks. Earthquakes can cause damage to homes, ranging from minor cracks to complete structural collapse. The land within earthquake zones can also shift, causing soil liquefaction, landslides, or sinkholes. It is essential to research the specific earthquake risks in the area where you are considering buying a home and weigh those risks against the benefits.

Living With the Risk

Fault lines, which can run for hundreds of miles, are where tectonic plates shift and are the likely sites of future earthquakes. While the chance of an earthquake is small, choosing to live on or near a fault line may exceed your risk tolerance. Homes on a fxaultline bear the most impact if earthquakes occur; therefore, homes on a faultline are at higher risk than those outside the zone.

According to FEMA, many homes are at risk. The top three earthquake-prone states, California, Washington, and Missouri are unprepared. California experiences 90% of the country’s earthquakes but only 10% of the residents have earthquake insurance. Washington is second but only 11.3% of residents have insurance, and Missouri’s Madrid area has declined to 11.4% of owners having insurance mainly due to premiums rising; in 2000, 60% of Madrid’s owners had insurance. 

Before Buying a Home in an Earthquake Zone

When buying a home in a state with a high frequency of earthquakes (CA, WA, MO, HI, AK) you will want to plan ahead, deciding where you are comfortable living. You can look at the USGS fault line maps to help with this decision. 

Check Building Codes and Regulations

To ensure that homes can withstand seismic activity, faultline zones’ building codes and regulations are often more stringent than in other areas. Before any home purchase, checking that the property meets these requirements is crucial. This check can involve researching building codes and regulations or hiring a structural engineer to inspect the property and provide a report on its structural integrity. This is especially important if the home is a few years old and may have been through a few earthquakes already. Earthquake damage may not be apparent to the untrained eye but may have severe damage. 

Some sellers will allow an inspection before an offer is made, and some will not. Your insurance or real estate agent can recommend an inspector that has an earthquake resistance specialty.

Earthquake Resistant Features

It is important that structures have the latest earthquake-resistant technology to mitigate risks. These can include cross-bracing, special diaphragms, shear walls, moment-resisting frames, trusses, and lightweight roofing. If you are unknowledgeable of such features, a professional can be hired to check for them.

I Want the Home, What’s Next?

Before you purchase, determine the recommended accommodations to enhance a home’s earthquake resistance and price them during the escrow period. If you have had the inspection already, you could negotiate for the seller to complete the repairs, or if you could not have an inspection already, you could make an offer contingent on the inspection results. If the inspector finds any issues, you can renegotiate or back out of the sale.

Check Insurance Requirements

Homeowners insurance is essential in case of damage from earthquakes or other natural disasters. However, standard homeowners insurance policies in some earthquake zones do not include earthquake coverage. It is crucial to check insurance requirements in the area where you are buying a home, and to factor in the cost of earthquake insurance if necessary.

What insurance will I need?

If you are borrowing to purchase a home, your lender will require you to, at minimum, have homeowners insurance for the purchase. In higher-risk areas, additional coverage, if not required, is highly recommended.  

Homeowners Insurance

This insurance typically covers your home’s structure, your belongings, and living expenses if you are unable to live in your home. Homeowners insurance also covers damage from fire, but does not generally cover earthquakes or floods; those perils require extra insurance.  

Peril- an event or circumstance that results in property damage.

Earthquake Insurance

Earthquake insurance supplements homeowners insurance and covers earthquake-caused damage for pure loss.

Pure loss- a value of items lost will be assessed and reimbured. Different claims will have different pure loss values.

Parametric Insurance

This is a new way of insuring, where policyholders are insured against specific events using parameters applied to all insured to determine the cost of damage. Payments for this insurance are triggered if the agreed parameters of the contract are met. For example, an earthquake meets or exceeds a defined shake intensity that a third party verifies. 

Understand Maintenance Needs

Maintenance is essential for any home, but it is crucial for homes in earthquake zones. Regular maintenance can help ensure that your home remains structurally sound and can withstand seismic activity. Before buying a home in an earthquake zone, it is essential to understand the specific maintenance needs of the property and to factor these costs into your budget. Unless already retrofitted, the older the home, the looser the codes were when built, and the more likely that an earthquake could cause a loss. 

Consider Retrofitting

Retrofitting is the process of modifying a home’s structure, making it more resistant to earthquake damage. Retrofitting can involve installing reinforcements such as cross braces or shear walls, which can help a home withstand seismic activity.

The Price of Retrofitting

Making a building earthquake-proof can be a substantial investment. There are several structural additions that can help a home endure the shaking of a massive earthquake. Older homes will benefit most from earthquake upgrades and retrofits. You should know the price of these upgrades from your escrow period and, if not completed before the purchase, which will benefit the most for their costs. 

Reselling a Faultline Property

As you learned from the buying process, it can be tricky to sell a property on a faultline. Similar to when powerlines are close to a home, a faultline can negatively impact your home’s value. Expect to demand a lower price if you are in a faultline zone, and you may need to get protective upgrades that are not necessary outside the faultline zone to complete a sale.

Summary and Final Thoughts

Buying a home in an earthquake zone requires careful consideration of the potential risks and costs associated with this type of property. Understanding the specific earthquake risks in the area, checking building codes and regulations, considering retrofitting, checking insurance requirements, and understanding maintenance needs can help you make an informed decision and protect your home and family during an earthquake. By doing your due diligence, making informed decisions, and having sufficient insurance to protect from the worst, you can enjoy your home in an earthquake zone with confidence and peace of mind.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

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Curious about you homeowner's insurance limitations? Here are some items that are probably not covered under your policy.

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Overview of mortgage terminology that first-time homebuyers will come across when buying their first home. It's important to understand the terminology used so buyers can better understand their mortgage.

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CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Draw Period. During your Draw Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of October 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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IMPORTANT NOTICE

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The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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