The National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973 established a national flood insurance program (NFIP), requiring the purchase of flood insurance as a condition of receiving any form of federally related financial assistance. The Federal Insurance and Mitigation Administration (FIMA), a component of the Federal Emergency Management Agency (FEMA), manages the NFIP.

Flood insurance protects against losses to a house, and its contents if coverage is added to the policy, but not the land surrounding the house. Flooding can be the result of heavy or prolonged rains, coastal storm surge, snowmelt, blocked storm drainage systems, levee dam failure, mudslides, and other causes.

A community participating in the NFIP must meet minimum floodplain management standards established by FEMA in order to have flood insurance available to its residents. If the community chooses not to join the program, then the area does not qualify for flood insurance. Also, if the area is federally declared a disaster area due to flooding, and the community is not participating in the NFIP, federal financing would not be available for repairs or building reconstruction.

Starting in July 2019, lenders can accept private insurance flood insurance policies as well as NFIP policies. The private-issued policies must meet the statutory definition of private flood insurance located in the Biggert-Waters Act. Regulated lending institutions can also exercise their discretion on whether to accept flood insurance policies issued by private insurers that do not meet the statutory definition of private flood insurance, subject to certain restrictions.

FEMA publishes maps of high-risk flood hazard areas. Federally regulated lenders are prohibited from lending on properties located in these high-risk areas unless flood insurance is purchased by the borrower. If the property is in a community that refuses to participate in the NFIP, then the lender would bear the risk of loss due to flooding.