Update: California FHA Loan Insurance Premiums Reduced in 2023

The federal government released some good news last week, for California home buyers who plan to use an FHA loan in 2023. According to a press release issued by the Department of Housing and Urban Development (HUD), the annual mortgage insurance premium for FHA loans will be reduced by 30 basis points.

For home buyers in California using FHA loans, this insurance premium reduction could save them anywhere from $1000 – $2000 per year (depending on the loan amount). It could also make the FHA mortgage program more popular among borrowers with limited budgets.

Here’s what you need to know about the reduced insurance premiums for FHA loans:

FHA Reduces Annual Mortgage Insurance Premiums

Let’s start with a couple of definitions, before delving into the specifics of the premium reduction . For those of you who aren’t familiar with the FHA loan program and how it works, this will bring you up to speed:

An FHA loan is simply a home mortgage loan that gets insured by the federal government, via the Federal Housing Administration. The FHA insures mortgage lenders against losses that could result from borrower default, or failure to repay. Because of this added protection, lenders can offer lower down payments and more flexible qualification criteria. Borrowers can put down as little as 3.5% when using the FHA loan program.

Annual mortgage insurance is one of two insurance premiums that FHA borrowers have to pay. There’s also an upfront premium, which usually comes to 1.75% of the base loan amount. The annual mortgage insurance can vary depending on the amount of money being borrowed and the loan “term” or length. The annual premium usually gets added onto the monthly payments, on top of the monthly principal and interest.

Last week, HUD officials announced that they would be lowering the annual mortgage insurance premium for FHA loans in California and nationwide. The annual premium will be reduced from 0.85% to 0.55% for most borrowers, starting on March 20, 2023.

According to Julia Gordon, Assistant Secretary for Housing at HUD:

At a time when budgets are tight and homeownership is out of reach for too many, FHA’s premium reduction will allow more households to access the stability and wealth creation of homeownership, particularly the first-time homebuyers and families of color who rely heavily on affordable FHA-insured mortgages. For many families, the savings will make the difference in their ability to purchase the home of their choice.

Most home buyers in California who use an FHA loan opt for the 30-year fixed mortgage, with a down payment below 5%. (This program allows borrowers to put down as little as 3.5%.) So the 0.55% annual mortgage insurance premium mentioned above will apply to these borrowers.

Some California Borrowers Could Save About $2,000 / Year

According to the HUD press release mentioned above, the 2023 reduction in annual mortgage insurance premiums could benefit an estimated 850,000 borrowers nationwide over the coming year. These folks could save an average of $800 annually, according to HUD’s estimate.

But here in California, home buyers who use FHA loans later in 2023 could save even more. That’s because the mortgage insurance premium is based on the loan amount, which in turn reflects home prices. And, as we all know, California home prices are much higher than the national average.

As of February 2023, the median home price in California was around $716,000. If an FHA borrower made a down payment of 3.5% on a median-priced home, it would bring the loan amount down to around $690,940.

• The previous annual mortgage insurance premium of .85% would’ve cost these borrowers around $5,873 per year.
• The new and reduced premium of .55% would come to around $3,800 per year, based on that same loan amount.

This means a home buyer in California who uses an FHA loan after the premium reduction takes place could save around $2,073 per year, on average. But again, the exact savings will depend on the price of the home being purchased.

This change will apply to FHA loans with “case numbers endorsed on or after March 20, 2023,” according to a HUD announcement. So, if you’re planning to buy a home in California with an FHA loan, you might benefit from waiting until this change takes effect. It could potentially reduce your annual insurance costs. And the effective date is less than a month away.

Ready to Explore Your Mortgage Options?

Whether you’re using an FHA or conventional loan to buy a home in California, Bridgepoint Funding has got you covered! Located in the San Francisco Bay Area, we serve home buyers and homeowners all across the Golden State. We offer a range of financing options, including the always popular FHA loan program.

If you have questions about using an FHA loan (or any other type of mortgage product, for that matter), please contact our knowledgeable staff. We can review your financial situation and long-term goals to help you choose the most suitable financing option.