A conventional loan is a mortgage that is not backed or insured by a federal government agency such as the FHA, VA, or USDA. Instead, conventional loans are originated and funded by private lenders and typically sold to or guaranteed by Fannie Mae or Freddie Mac — the two government-sponsored enterprises (GSEs) that set underwriting standards for the majority of U.S. home loans.

Because conventional loans are not government-insured, lenders assume more risk, which means they typically require stronger credit profiles compared to government-backed alternatives. However, this same structure gives conventional loans a significant advantage: they are often more flexible, come with fewer restrictions on property types and loan purposes, and can be more cost-effective for buyers with good credit and moderate-to-large down payments.

In California — a state defined by high home prices, competitive markets, and sophisticated buyers — conventional loans are the most widely used mortgage product. Whether you're purchasing a home in Los Angeles, San Diego, the Bay Area, or the Central Valley, understanding how conventional loans work is the first step toward making a smart financing decision.

Conforming vs. Non-Conforming (Jumbo) Conventional Loans

Not all conventional loans are the same. The most important distinction is between **conforming** and **non-conforming** loans.

Conforming Loans

A conforming loan meets the loan limits and underwriting guidelines set by Fannie Mae and Freddie Mac. These loans are the most common type of conventional mortgage and are easier to qualify for because they follow standardized rules.

2026 California Conforming Loan Limits

The Federal Housing Finance Agency (FHFA) sets conforming loan limits each year. For 2026:

- Baseline conforming limit (most U.S. counties): $806,500
- High-cost area limit (many California counties): Up to $1,209,750

California has a significant number of high-cost counties where the standard limit is raised. Here's how major California counties break down:

If your loan amount falls at or below the limit for your county, you're in conforming territory. If it exceeds that limit, you're looking at a jumbo loan.

Non-Conforming (Jumbo) Loans

If your loan amount exceeds the conforming limit for your county, it becomes a jumbo loan — still a conventional mortgage, but one that doesn't conform to GSE guidelines. Jumbo loans typically have stricter requirements. (See our Jumbo Loans California page for full details.)

Down Payment Options for Conventional Loans in California

One of the most appealing aspects of conventional loans is their flexibility in down payment requirements:

3% Down — Conventional 97 / HomeReady / Home Possible

Fannie Mae and Freddie Mac both offer programs allowing as little as 3% down for first-time homebuyers (and sometimes repeat buyers):

- Fannie Mae HomeReady: income limits apply; designed for low-to-moderate income borrowers
- Freddie Mac Home Possible: similar income-based eligibility
- Conventional 97: available to first-time buyers with strong credit

For a $600,000 home, a 3% down payment is just $18,000 — far less than many buyers expect.

5% Down

A 5% down payment ($30,000 on a $600,000 home) is available to most borrowers and opens up more programs than 3% down with fewer income restrictions.

10% Down

At 10% down, PMI rates drop significantly, and you'll typically qualify for better interest rates. This is a sweet spot for many California buyers.

20% Down — No PMI

The gold standard. Put 20% down and you completely eliminate Private Mortgage Insurance (PMI), resulting in lower monthly payments and no PMI removal process needed later.

Private Mortgage Insurance (PMI): What It Is and How to Remove It

PMI protects the lender — not you — in case you default on the loan. It's required on most conventional loans when your down payment is less than 20%.

PMI Cost Estimates

PMI typically costs between 0.5% and 1.5% of your loan amount per year, paid monthly. On a $700,000 loan at 1% PMI, that's about $583/month.

How to Remove PMI

The good news: PMI is not permanent on conventional loans.

1. Automatic cancellation: Under the Homeowners Protection Act, your lender must automatically cancel PMI when your loan balance reaches 78% of the original purchase price.
2. Request cancellation at 80% LTV: Once you've reached 80% loan-to-value (through payments or appreciation), you can request PMI cancellation in writing.
3. Refinance: If your home has appreciated significantly, refinancing at 80% LTV or lower eliminates PMI.
4. New appraisal: In high-appreciation markets like California, many homeowners reach 80% LTV faster than expected. A new appraisal may qualify you for early PMI removal.

Credit Score Requirements for Conventional Loans in California

For the best conventional loan pricing in California, a credit score of 740 or higher is ideal. Scores below 680 may still qualify, but you'll pay higher rates and may face additional requirements.

Bottom line: If you have a credit score above 680 and can put at least 5–10% down, a conventional loan is almost always the better long-term value in California due to PMI removability and lower lifetime mortgage insurance costs.

Fixed vs. Adjustable Rate Conventional Loans

Fixed-Rate Mortgages (FRM)

Your interest rate stays the same for the entire loan term. Most common terms:
- 30-year fixed: lowest monthly payment, highest total interest
- 20-year fixed: middle ground
- 15-year fixed: higher payment, significant interest savings, faster equity

Fixed rates are best for buyers who plan to stay in the home long-term or want payment predictability.

Adjustable-Rate Mortgages (ARM)

ARMs offer a lower initial rate for a fixed period (5, 7, or 10 years), then adjust periodically based on a market index.

- 5/1 ARM: Fixed for 5 years, adjusts annually after
- 7/1 ARM: Fixed for 7 years, adjusts annually after
- 10/1 ARM: Fixed for 10 years, adjusts annually after

ARMs can be an excellent strategy for buyers who plan to sell or refinance within the initial fixed period — a common scenario in California's active move-up market.

Who Are Conventional Loans Best For?

Conventional loans are an ideal fit if you:

- Have a credit score of 680 or higher (620 minimum)
- Can make a down payment of at least 3–5%
- Want to eliminate mortgage insurance over time
- Are purchasing a higher-priced home (up to conforming limits)
- Want flexibility on property types (condos, investment properties, second homes)
- Plan to stay in the home long term and want rate stability

Frequently Asked Questions: Conventional Loans in California

Q: What is the minimum down payment for a conventional loan in California?
A: As low as 3% for first-time homebuyers through programs like HomeReady and Home Possible. Most repeat buyers need at least 5% down.

Q: Can I get a conventional loan with a 620 credit score in California?
A: Yes, 620 is the minimum credit score for most conventional loans. However, expect higher interest rates. A score of 700+ will significantly improve your terms.

Q: What is the conforming loan limit in Los Angeles in 2026?
A: The conforming loan limit in Los Angeles County is $1,209,750 for 2026. Loans above this amount are considered jumbo loans.

Q: Is PMI forever on a conventional loan?
A: No. PMI on a conventional loan is removable once your loan-to-value ratio reaches 80%. This is one of the biggest advantages over FHA loans, which typically require MIP for the life of the loan.

Q: Can I use a conventional loan to buy an investment property or second home in California?
A: Yes. Conventional loans allow purchases of primary residences, vacation/second homes, and investment properties. Down payment requirements are higher for non-primary residences.

Q: How long does it take to close a conventional loan?
A: Typically 20–30 days from application to closing, though this can vary. Billcutter works to streamline the process for faster closings.

Ready to Get Started?

Whether you're a first-time buyer in Sacramento or moving up to a luxury home in Orange County, Billcutter's licensed mortgage professionals are here to help you find the right conventional loan for your situation.

📞 Call us: 888-855-1423
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Billcutter is a licensed California mortgage broker. NMLS #1825243. Not a commitment to lend. Rates and terms subject to change. All loans subject to credit approval. Equal Housing Opportunity.