Conventional Home Loans - California Mortgage Lender

Conventional Home Loans: Flexible Financing With Competitive Rates

Conventional loans are the most common type of mortgage in the United States, accounting for roughly two-thirds of all home loans originated each year.

Unlike FHA or VA loans, conventional mortgages are not insured or guaranteed by a government agency. Instead, they are backed by private lenders and typically sold to Fannie Mae or Freddie Mac, the two government-sponsored enterprises that set the guidelines for most conventional lending. Because there is no government insurance premium baked into the loan, borrowers with strong credit profiles often find conventional financing to be the most cost-effective path to homeownership.

Conforming vs. Non-Conforming Loans

Conventional loans fall into two broad categories:

Conforming loans meet the loan limits and underwriting standards set by Fannie Mae and Freddie Mac. For most California counties the conforming limit is $766,550, while high-cost areas such as Los Angeles and Orange County have limits up to $1,149,825.
Non-conforming loans (often called jumbo loans) exceed these limits. They carry their own qualification standards and are covered separately.

If the home you are purchasing falls within the conforming loan limits for your county, a conventional conforming loan will typically offer the best combination of rate and terms.

Who Should Consider a Conventional Loan?

Conventional financing is ideal for borrowers who have solid credit, stable income, and at least a small down payment saved.

Credit score of 620 or higher (680+ for the most competitive rates)
Steady employment history of at least two years
Debt-to-income ratio at or below 45%
Down payment funds of at least 3% of the purchase price
Purchasing a primary residence, second home, or investment property

Conventional loans are the only major loan type that allows financing on second homes and investment properties, making them the go-to choice for buyers looking beyond a primary residence.

Down Payment Requirements

One of the most common misconceptions about conventional loans is that you need 20% down. While putting 20% down eliminates the need for private mortgage insurance, it is not a requirement to qualify.

As low as 3% down for first-time homebuyers through Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs
5% down is the standard minimum for most conventional purchase loans
20% down eliminates private mortgage insurance (PMI) entirely

If you put down less than 20%, your lender will require PMI. The key advantage over FHA mortgage insurance is that PMI on a conventional loan can be cancelled once you reach 20% equity in the home, either through payments or appreciation. FHA mortgage insurance, by contrast, remains for the life of the loan in most cases.

Credit Score Requirements

Conventional loans generally require a minimum credit score of 620. However, your credit score directly affects the interest rate you receive:

740+ – Best available rates and lowest PMI costs
700 – 739 – Very competitive rates
680 – 699 – Good rates with slightly higher PMI
620 – 679 – Qualifying rates available, higher PMI premiums

Borrowers with scores below 620 may want to explore FHA financing, which offers more flexible credit guidelines.

Fixed-Rate and Adjustable-Rate Options

Conventional loans are available in both fixed-rate and adjustable-rate (ARM) structures:

Fixed-rate mortgages lock in your interest rate for the entire loan term. The most popular options are the 30-year fixed and 15-year fixed.
Adjustable-rate mortgages (ARMs) offer a lower initial rate for a set period (typically 5, 7, or 10 years), after which the rate adjusts annually based on market conditions. ARMs can be a strong choice if you plan to sell or refinance before the adjustment period begins.

Benefits of a Conventional Loan

No upfront mortgage insurance – Unlike FHA loans, conventional loans do not charge an upfront mortgage insurance premium at closing.
Cancellable PMI – Private mortgage insurance drops off automatically at 78% loan-to-value or can be removed by request at 80% LTV.
Higher loan limits – Conforming limits in high-cost California counties exceed FHA limits, giving buyers more purchasing power without moving into jumbo territory.
Flexible property types – Finance a primary home, vacation property, or rental investment under one loan program.
Competitive rates – Borrowers with good credit often secure lower overall costs compared to government-backed alternatives.
Fewer property restrictions – Conventional appraisals are generally less strict than FHA appraisals, which can make the buying process smoother.

Conventional Loan Common Questions

The minimum down payment is 3% for qualified first-time homebuyers using programs like Fannie Mae HomeReady or Freddie Mac Home Possible. Most other conventional loans require at least 5% down. Putting 20% down eliminates the need for private mortgage insurance.

Yes. You can request PMI removal once your loan-to-value ratio reaches 80% through a combination of payments and home value. Your servicer is required to automatically cancel PMI when the ratio hits 78% based on the original amortization schedule.

Conventional loans are not government-insured, which means no upfront mortgage insurance premium and the ability to cancel PMI. They typically require higher credit scores (620 vs. 580 for FHA) but offer lower overall costs for borrowers with good credit. Conventional loans also allow financing on second homes and investment properties, which FHA does not.

Yes. Conventional loans are one of the few loan types that finance investment properties. Expect to put down at least 15-20% and meet slightly stricter credit and reserve requirements compared to a primary residence purchase.

Conforming loan limits vary by county. High-cost areas like Los Angeles and Orange County have limits up to $1,149,825 for a single-family home. Other counties may use the baseline national limit of $766,550. Contact us for the current limits in your area.

Ready to explore your conventional loan options? Call us at (888) 400-0433 or apply online to get started. Our loan specialists will help you find the right program and rate for your financial goals.