A conventional loan is a mortgage not insured or guaranteed by the federal government. Instead, it’s backed by private lenders and typically follows guidelines set by Fannie Mae and Freddie Mac. In California, these loans are extremely common because they offer flexibility, competitive pricing, and higher loan limits that better match the state’s home prices. Key Features of a Conventional Loan in California
1. Not Government‑Backed
Unlike FHA, VA, or USDA loans, conventional loans rely on private mortgage insurance (PMI) when the borrower puts less than 20% down.
2. Two Main Types
Conforming: Meets Fannie/Freddie guidelines and county loan limits. Most common. Non‑Conforming: Exceeds conforming limits — very common in CA due to high home prices.
3. Typical Requirements
California lenders generally look for: Good to excellent credit (often 620–740+ for best pricing) Down payment as low as 5% for first‑time buyers (conforming) DTI usually capped around 45% (sometimes up to 50% with strong compensating factors) Stable income and documentation (some programs allow limited documentation)
4. PMI Rules
Required if LTV > 80% Can be removed once equity reaches 20% Often cheaper than FHA mortgage insurance for strong borrowers
5. California‑Specific Considerations
High-cost counties (LA, OC, SF, Santa Clara, etc.) have elevated conforming loan limits, reducing the need for jumbo financing.
CalHFA Conventional is available for first‑time buyers, offering fixed 30‑year terms and down‑payment assistance options.
Why Conventional Loans Are Popular in CA
Lower long‑term cost than FHA for strong borrowers More flexible property types (condos, second homes, investment properties) No upfront mortgage insurance premium Better for high‑income, high‑credit borrowers, which fits many CA markets