California mortgage guide
California Property Taxes and Homeowners Insurance: What Ownership Actually Costs
In this guide
California property tax starts at 1% of the home's assessed value — set at the purchase price when you buy — plus voter-approved debt and direct assessments for your specific parcel, and the assessed value can rise no more than 2% a year while you own the home. Homeowners insurance has no such formula: it is priced per home.
Key numbers
| Item | Figure | Source |
|---|---|---|
| Base property-tax levy (Proposition 13) | 1% of assessed value, plus the rate needed for voter-approved bonded debt | California BOE — How Property Is Assessed (TRA information sheet) |
| Maximum annual increase in assessed value | 2% a year (the inflation adjustment is the lower of the California CPI change or 2%), until a change in ownership or new construction | California BOE — How Property Is Assessed |
| Illustrative tax rate used by the BOE in its own supplemental examples | 1.025% — stated by the BOE as for illustration only; your parcel's rate comes from its tax-rate area | California BOE — Supplemental Assessment |
| Supplemental bill timing | One bill for a purchase between June 1 and December 31; two bills for a purchase between January 1 and May 31 | California BOE — Supplemental Assessment |
| Insurance safety net | The California FAIR Plan is the insurer of last resort under Insurance Code §§10090–10100.2, for owners who cannot obtain coverage in the normal market | California Department of Insurance — FAIR Plan hearing notice |
The property-tax side, in the order it hits you
Year one is not the seller's tax bill. When a home changes ownership, the assessor sets a new base year value at the purchase price. The difference between the seller's old assessed value and your new one is billed separately as a supplemental assessment, prorated from the first of the month after your purchase to the end of the fiscal year (June 30). Buy between January 1 and May 31 and two supplemental bills arrive — one for the rest of the current fiscal year, one for the full following year. Buy between June 1 and December 31 and there is one. If the value went down instead, the negative supplemental becomes a refund. These bills arrive outside your escrow account's early planning, which is why they surprise new buyers: keep cash for them.
After that, the 2% cap is your friend. Your assessed value is adjusted each year by the inflation factor — the lower of the California consumer price index change or 2% — so your tax grows slowly and predictably even when market prices run. The cap lasts until you sell or complete new construction, which is assessed at its added value only.
Your total rate is parcel-specific. The 1% base levy is statewide. On top of it sit voter-approved bond debt and direct assessments — which can include Mello-Roos community facilities charges in newer developments — set by your tax-rate area. Two homes at the same price in different neighbourhoods can carry materially different total bills. Before you offer, look up the specific parcel's current tax bill and ask what assessments ride on it; do not budget from a statewide average percentage found on a calculator site.
The insurance side: no cap, no formula, real availability risk
Homeowners insurance in California is priced on the home and its location: replacement cost, construction, age, distance to fire services, and wildfire exposure. There is no honest statewide average premium to budget from — the only number that matters is a quote on the specific home, obtained early. In higher-risk areas, some owners cannot obtain coverage in the normal market at all. The California FAIR Plan exists for exactly that case: created by statute as the insurer of last resort, it provides basic fire coverage for owners who cannot get insurance through the normal market. FAIR Plan coverage is basic — it is commonly paired with a separate difference-in-conditions policy that fills the gaps a standard homeowners policy would cover, such as liability and theft. A lender requires hazard insurance on the home; how the coverage is assembled is your and your insurance agent's work, and it needs to be settled before your contingency period expires, not in the week before closing.
Earthquake insurance is a separate decision everywhere in California. A standard homeowners policy and the FAIR Plan do not cover earthquake damage; earthquake cover is bought separately, through the California Earthquake Authority through participating insurers or from other insurers. Price it as its own line item if you want it — do not assume it is inside any quote you receive.
How lenders treat these costs
Your lender qualifies you on the whole housing payment, not the loan payment alone: principal and interest, property taxes, homeowners insurance, and mortgage insurance if it applies. Taxes and insurance are usually collected monthly into an escrow (impound) account at roughly one-twelfth of the annual bills with each payment, and the servicer pays the county and the insurer when due. Two consequences follow. First, a home with heavy direct assessments or expensive insurance qualifies differently from the same-priced home without them. Second, when tax or insurance rises, your total monthly payment rises with it at the next escrow analysis — owners who budget only the loan payment feel that as a shock it never had to be.
Worked example: one $850,000 purchase, three years of tax
Using the BOE's own illustrative rate of 1.025% (your parcel's actual rate will differ):
- Purchase price and new assessed value: $850,000.
- First full-year tax: $850,000 × 1.025% = $8,712.50 — about $726 a month into escrow.
- Suppose the seller's assessed value was $520,000. Supplemental assessment: $850,000 − $520,000 = $330,000 of added value; a full year of tax on that difference is $330,000 × 1.025% = $3,382.50, prorated for the months remaining in the fiscal year after your purchase month, and billed in one or two supplemental bills depending on the purchase date.
- Year two, if the inflation factor is the full 2%: assessed value $850,000 × 1.02 = $867,000; tax $867,000 × 1.025% = $8,886.75.
- Year three at another full 2%: $867,000 × 1.02 = $884,340; tax $884,340 × 1.025% = $9,064.49.
Note what the example shows: the tax grows by roughly 2% a year on a known base — the opposite of insurance, where the renewal can move by far more and the carrier can decline to renew at all.
Common mistakes
- Budgeting from the seller's tax bill. The seller's assessed value reflects their purchase year, not yours. On the example above, budgeting from the seller's bill understates your tax by about $3,383 a year — and the supplemental bill collects the difference anyway.
- Treating a statewide average tax percentage as your rate. The 1% levy is only the base. Bond debt and direct assessments are parcel-specific; a Mello-Roos charge alone can add thousands a year that no average will show you.
- Getting insurance quotes after contingencies expire. In fire-risk areas, availability — not price — is the risk. A home you cannot insure is a home a lender will not fund. Quote the specific property during the contingency period.
- Assuming the FAIR Plan is a full homeowners policy. It is basic fire coverage of last resort. The gaps are filled, if at all, by a separate policy you arrange — price both together.
- Forgetting earthquake cover is separate. Neither a standard policy nor the FAIR Plan covers earthquake damage. Decide deliberately, with a separate quote, rather than discovering the exclusion after a claim.
Questions buyers and owners ask
How much will my property tax be?
Start with 1% of your purchase price for the base levy, then add your parcel's voter-approved debt and direct assessments. The county assessor and the current tax bill for the specific parcel give you the real figure; statewide averages do not.
What is a supplemental tax bill?
A separate bill for the increase in assessed value when a home changes ownership or new construction completes, prorated from the first of the month after the event to June 30. Expect one bill for a June-to-December purchase and two for a January-to-May purchase.
Can my assessed value jump if home prices soar?
No. While you own the home, the assessed value rises by the inflation factor only — capped at 2% a year — regardless of market prices. It resets when the home changes ownership.
What if no insurance company will cover the home?
The California FAIR Plan provides basic fire coverage as the insurer of last resort for owners who cannot obtain coverage in the normal market. Pair it with a difference-in-conditions policy for the gaps, and arrange both before closing.
Is earthquake insurance included in homeowners insurance?
No. Earthquake damage is excluded from standard homeowners policies and from the FAIR Plan. Earthquake cover is a separate policy and a separate premium.
Why did my monthly payment go up when my loan is fixed-rate?
Because the escrow portion moved. When taxes or insurance rise, the servicer's escrow analysis raises the monthly collection for those bills even though principal and interest stay fixed.
Sources
- California State Board of Equalization — How Property Is Assessed for Property Tax Purposes (TRA information sheet): the 1% levy and the 2% assessment cap (fetched October 14, 2026).
- California State Board of Equalization — Supplemental Assessment: mechanics, proration factors, one-versus-two bills, and the 1.025% illustrative rate (fetched October 14, 2026).
- California Department of Insurance — Notice of Investigatory Hearing into the California FAIR Plan Association: insurer of last resort, Insurance Code §§10090–10100.2 (fetched October 14, 2026).
Last reviewed October 15, 2026. Questions: call 415-297-6703 or use the contact page.
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