Conventional loans in California

What are conventional loans?

Conventional loans are mortgages made without government insurance. Because the lender takes on more of the risk than with FHA or VA, the guidelines ask for good credit, steady income and a reasonable level of monthly debt. In return you get flexibility: any property type from a condo to a four-unit building, primary homes, second homes and rentals, and mortgage insurance that goes away instead of lasting for the life of the loan.

Most conventional loans are conforming, meaning they fit the size limits and standards set by Fannie Mae and Freddie Mac. Loans above those limits are jumbo loans.

Conventional loan limits in California

The conforming limit is set each year by the Federal Housing Finance Agency. In high-cost California counties, including Los Angeles, Ventura, Orange, Santa Clara, Alameda and San Francisco, the limit is raised well above the national baseline. A loan between the two figures is called high-balance conforming. It still uses conventional guidelines and is typically priced closer to standard conforming than to jumbo. The Central Valley and other lower-cost counties use the baseline. Tell us the county and we will confirm this year’s figure.

Down payment and mortgage insurance

First-time buyers can put as little as 3% down through standard 97% loan-to-value programs, and any buyer earning up to 80% of the area median income can do the same through Fannie Mae HomeReady or Freddie Mac Home Possible. Other buyers need 5% on a primary home. Below 20% down, the loan carries private mortgage insurance (PMI). With a 740 score and 10% to 15% down, PMI runs roughly 0.38% of the loan per year; with 5% to 10% down, closer to 0.53%. On a $600,000 loan at 0.38%, that is about $190 a month.

Unlike FHA, there is no upfront premium, and PMI ends. You can request cancellation at 80% of the original value and it drops automatically at 78%. If your home gains value, a new appraisal or a refinance can remove it sooner.

Who conventional loans fit best

• Borrowers with credit around 700 and up. Pricing steps up at each credit band, so stronger scores get noticeably better rates.
• Buyers with 10% or more down. At that point conventional usually beats FHA on total monthly cost.
• Second home and rental buyers. FHA and VA are for primary homes only.
• Condo buyers in complexes without FHA approval. Conventional condo review is often easier.

Qualifying for a conventional loan

The minimum credit score is typically 620. Lenders want two years of stable income, documented with pay stubs and W-2s, or tax returns if you are self-employed. Total debt-to-income usually needs to be at or below 45%, and up to 50% with strong credit and reserves through automated underwriting. Gifts from family can cover the down payment on a primary home.

Fixed or adjustable

Conventional loans come as a fixed rate mortgage in terms from 10 to 30 years, or as an adjustable rate mortgage with a fixed period of five, seven or ten years. See which one fits on those pages, or compare everything on our loan types page.

Already have a conventional loan with a low rate?

If you need cash, keep the loan and add a HELOC behind it rather than refinancing the whole balance at today’s rate.

Conventional loans for second homes and rentals

A second home in the mountains or at the beach, or a rental in town, can be financed conventionally where FHA and VA cannot. Second homes generally need at least 10% down and investment properties more, with pricing that reflects the added risk. If the rental will carry itself on its rent and you would rather not document personal income, a DSCR loan is the alternative.