Big FHA Rule Change: What It Means for Buyers and Agents in California

Hey agents! Big news dropped on Tuesday, March 25, 2025, from the U.S. Department of Housing and Urban Development (HUD). They’ve just tightened the rules on who can get an FHA loan, and it’s going to shake things up for some of your clients - especially in California, where FHA loans are a lifeline for first-time buyers. Let’s unpack this, look at how big FHA’s footprint is here, and guess who might feel the pinch.

What’s Changing?

Starting May 25, 2025 (for new FHA case numbers), only U.S. citizens, lawful permanent residents (think green card holders), and citizens of Micronesia, the Marshall Islands, or Palau can qualify for FHA-insured mortgages. That’s it. If you’re not in one of those buckets, there is no FHA loan for you.

This is a U-turn from the old rules. Before, non-permanent residents - like folks on work visas or DACA recipients (Dreamers) - could snag an FHA loan if they had a valid Social Security number and work authorization. HUD’s reasoning? They want to “protect American citizens’ financial interests” and ensure borrowers can stick around long-term to pay off those 30-year mortgages. Non-permanent residents, with their visas potentially expiring, are now seen as too risky.

Why FHA Matters in California

FHA loans are a big deal here - they’re the go-to for buyers with lower credit scores or small down payments (as little as 3.5%). In a state where the median home price is pushing $800K (way above the U.S. average), that flexibility is gold. So, how many loans are we talking about? Let’s look at the past few years, based on HUD’s public data:

• 2020: ~9.8% of all single-family home loans in California were FHA (about 62,000 out of 630,000 total).
• 2021: ~8.5% (around 58,000 of 680,000) - a hot market, but FHA held steady.
• 2022: ~10.2% (roughly 45,000 of 440,000) - sales dropped, but FHA’s share ticked up.
• 2023: ~11.1% (about 42,000 of 380,000) - tighter money, more FHA reliance.
• 2024 (estimate): Likely 11 - 12% (projected 40,000 - 45,000 of ~370,000), per trends and rising rates.

That’s 40,000 - 60,000 FHA loans annually in California - 10 - 12% of the market. Not the majority, but a chunky slice, especially for first-time buyers!

Who’s Affected? The Undocumented Question

Here’s the tricky part: HUD doesn’t track how many FHA borrowers are non-permanent residents - or undocumented folks who might’ve slipped through with valid work docs (e.g., DACA or temporary permits). Before this change, those groups could qualify. Now, they’re out.

California has the biggest undocumented population in the U.S. - about 1.85 million in 2021, per Pew Research, though numbers have dipped since. Not all are homebuyers, but some are. The Migration Policy Institute estimated in 2019 that 22% of undocumented Californians owned homes - around 400,000 people. Most used private loans or cash, not FHA, since FHA always required a Social Security number and work eligibility.

But DACA recipients - roughly 150,000 in California - were FHA-eligible since a 2021 policy shift under Biden. If 10% of them pursued homeownership (a conservative guess, matching broader first-time buyer trends), that’s ~15,000 potential FHA borrowers. Add in other non-permanent residents (e.g., H-1B visa holders), and maybe 20,000 - 30,000 Californians total leaned on FHA’s flexibility yearly. With this rule, they’re now locked out.

So, of those 40,000 - 45,000 annual FHA loans in California, let’s estimate 5 - 10% (2,000 - 4,500) went to non-permanent residents. It’s a small but real chunk - think a few dozen per county, more in urban hubs like LA or the Bay Area.

What It Means for Agents

• Client Check: Ask about residency status early. No green card or U.S. passport? FHA’s off the table after May 25. Get ahead of it - case numbers assigned before then can still use the old rules.
• Plan B: Non-permanent buyers aren’t doomed - they can chase conventional loans (tougher standards, bigger down payments) or niche options like ITIN mortgages (higher rates, 20 - 30% down). Cash is king, too, if they’ve got it.
• Market Ripple: This could cool demand slightly in high-immigrant areas - fewer FHA buyers in the mix. But California’s housing crunch means it won’t tank prices. Sellers might not even notice.

The Bottom Line

This isn’t a seismic shift - FHA’s still huge for citizens and permanent residents. But for that 5 - 10% of FHA users without permanent status, it’s a door slamming shut. Agents, you’ll need to pivot fast for those clients. Dig into their options, and don’t sleep on the May 25 cutoff - get those deals moving now if they qualify under the old rules.

Please let me know if you have any questions or if a client needs my guidance. I’m just a call, text, or email away.

📞 Cell: 661-714-6258

TEXT: 661-714-6258

📞 Office: 661-260-2970 ext. 2222

📞 Direct Line: 661-291-2222

📧 Email: Mike@AugustaFinancial.com

But wait, there’s more…

Interest Rates

Rates were at their lowest point in 3 months on March 3rd and have faded slightly ever since. There is no telling where they will go from here, but we seem to have little losses every week!

• We offer 12-day escrows for pre-approved buyers - Conventional/FHA/Jumbo/Bridge loans.
• We provide loans in all states, so call me with anything you need.
• Government Loans (FHA/VA/USDA) are in the 5’s and very low 6s.
• Conventional loans up to $806,500 are in the mid to high 6s.
• High Balance Loans from $806,501 to $1,209,750 are also in the mid to high 6’s.
• Jumbo loans above $1,209,750 are in the 6’s and 7’s.
• Bank statement loans are available with 10% down again, with larger down payments in the 6’s ++.
• Profit and Loss Statement loans require 20% down - no bank statements needed, only a profit and loss statement!
• 0 down loans are available in the high 6s, with a minimum credit score of 620, up to $1,300,000.
• Private Money lenders offer Hard Money Loans with 35% down.
• No Ratio Loans require 30% down.
• DSCR (Debt Service Coverage Ratio) loans are available with as little as 15% down.
• Bridge Loans typically have an interest rate of 7.99% with limited fees, helping you get where you need to go!
• 3/2/1 Buydowns, 2/1 Buydowns, and 1/0 Buydowns are available at great starting rates!

Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits.

**Good News for Condos:**   –

Canyon Park Carriage – Approved by Fannie Mae until 7/9/2025

Bella Ventana – Approved! YAY! They just got their insurance deductible corrected, so we sent the info to Fannie, and they have been removed from Fannie’s list and will be off my naughty list! By the way, this was spearheaded by a real estate agent that lives in BV!

**Bad News for Condos***

Las Ventanas – Insurance is the main culprit here!

The full state of California naughty list has been added to MikeMeena.com! See the link below:

https://mikemeena.com/non-warrantable-condos/

Let me know if you hear anything new about condos or townhouses.

I am available every day if you need anything.

📞 Cell: 661-714-6258

TEXT: 661-714-6258

📞 Office: 661-260-2970 ext. 2222

📞 Direct Line: 661-291-2222

📧 Email: Mike@AugustaFinancial.com

Have a great day, and an even better tomorrow! Please call me when you have a client who needs to borrow!