Conventional Loan Requirements Every California Buyer Should Know

For many California homebuyers, conventional loans remain the most popular way to finance a home. Backed by private lenders and regulated by Fannie Mae and Freddie Mac, these mortgages offer flexibility, competitive rates, and more freedom than many government-backed programs like FHA or VA loans. But qualifying for a conventional loan in California requires meeting certain standards, from credit score and down payment requirements to debt ratios and property guidelines. Understanding these details will help you make confident, informed choices on your path to homeownership.

What Is a Conventional Loan?

A conventional loan is any mortgage not insured or guaranteed by the federal government. Instead, these loans are issued by private lenders and follow guidelines set by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation).

These two agencies don’t lend directly to borrowers, instead, they purchase mortgages from lenders to keep funds flowing through the housing market. Because of that, lenders must ensure every borrower meets Fannie Mae and Freddie Mac standards to make the loans “conforming.”

Key takeaway: Conventional loans are ideal for buyers with solid credit, steady income, and enough savings to make a reasonable down payment.

Benefits of a Conventional Loan in California

Conventional loans continue to be a preferred option for California buyers because they offer:

Flexible Loan Terms: Choose between fixed or adjustable-rate mortgages (ARMs).
No Upfront Mortgage Insurance: Unlike FHA loans, you won’t pay an upfront mortgage insurance premium.
Ability to Cancel PMI: Private mortgage insurance (PMI) can be removed once you reach 20% equity.
Wide Property Eligibility: Can be used for primary residences, second homes, or investment properties.
Potential for Lower Long-Term Costs: Borrowers with strong credit often get lower interest rates.

Conventional Loan Limits in California (2025)

Conventional loan limits depend on county housing prices. For 2025, Fannie Mae and Freddie Mac increased their limits to reflect California’s rising home values.

Standard loan limit: $766,550 for most counties
High-cost areas (like Los Angeles, Orange, and Bay Area counties): up to $1,149,825
Two- to four-unit properties: limits increase up to $2,211,600 in high-cost counties

If your loan exceeds these limits, it becomes a jumbo loan, which follows different qualification rules.

Credit Score Requirements

Your credit score is one of the most important factors for conventional loan approval.

Minimum score: Typically 620 (some lenders may require higher)
Best rates: Usually available with scores of 740 or above

A higher score can significantly reduce your interest rate, saving you thousands over the life of your loan.

Example:
A borrower in San Diego with a 760 credit score may qualify for a lower interest rate than a borrower with a 660 score, even if both make the same down payment.

Down Payment Requirements

Conventional loans offer flexible down payment options:

3% down for first-time buyers using certain Fannie Mae or Freddie Mac programs
5% down for standard borrowers
10–20% down for stronger offers and no PMI

Tip: If you put less than 20% down, you’ll pay private mortgage insurance (PMI) until you reach 20% equity, but it’s removable, unlike FHA mortgage insurance.

Example:
A California couple buying a $700,000 home with 10% down would finance $630,000. Once their home value and payments combine to reach 20% equity, they can request PMI removal and lower their monthly costs.

Debt-to-Income Ratio (DTI)

Your DTI ratio compares your monthly debt payments to your gross monthly income.

Standard limit: Around 45% for most lenders
Can go up to 50% with compensating factors (like a high credit score or large savings)

Keeping your DTI lower not only improves your chances of approval but can also help you qualify for better loan terms.

Income and Employment Verification

Lenders will review:

At least two years of stable employment
Recent W-2s or tax returns
Consistent or increasing income patterns

Self-employed borrowers may need to provide two years of tax returns and additional financial statements.

Example:
A self-employed designer in Sacramento could still qualify for a conventional loan if their income has been steady or growing and is well-documented through tax filings.

Property Requirements

Conventional loans require the property to meet basic livability and safety standards. However, the appraisal rules are less strict than FHA loans.

The home must:

Serve as your primary, secondary, or investment property
Meet local zoning and building codes
Be in acceptable condition to protect the lender’s investment

Conventional loans also allow condos, townhomes, and planned unit developments, as long as the property meets Fannie Mae or Freddie Mac approval guidelines.

Private Mortgage Insurance (PMI)

If your down payment is under 20%, PMI will be required. However:

PMI can be removed once you hit 20% equity.
You can request cancellation or it will automatically end when you reach 78% loan-to-value.
Strong credit scores may qualify for lower PMI rates.

This makes conventional loans appealing to California buyers who plan to stay in their home long-term and build equity quickly.

Conforming vs. Non-Conforming (Jumbo) Loans

Most California homebuyers use conforming loans, those that meet Fannie Mae and Freddie Mac standards. But if you’re purchasing in a high-cost market (like San Francisco or Orange County), your loan may exceed those limits.

These are known as jumbo loans, which:

Have stricter credit and income requirements
Often require 10–20% down payments
May offer slightly higher interest rates

If your loan amount is under the 2025 conforming limit, you’ll enjoy more flexibility and potentially better terms.

Example: Conventional Loan in Action

Let’s say you’re buying a $750,000 home in Riverside County with:

Down payment: 10% ($75,000)
Credit score: 720
DTI: 40%
Employment: 3 years with stable income

You could qualify for a conventional loan under the 2025 conforming limit, with competitive rates and the option to remove PMI after reaching 20% equity.

Is a Conventional Loan Right for You?

A conventional loan is an excellent choice if you:

Have solid credit and steady income
Plan to make at least a small down payment
Want the ability to remove PMI later
Prefer flexible terms or buying investment property

Borrowers with lower credit or minimal savings might still benefit from an FHA loan, but for most Californians, conventional financing offers more control and long-term savings.

Start Your Conventional Loan Journey with Buwalda Mortgage Services

At Buwalda Mortgage Services, we help California homebuyers find the right mortgage to fit their goals. Whether you’re exploring a conventional loan, comparing options from Fannie Mae and Freddie Mac, or weighing your down payment strategies, our experienced team makes the process clear and personalized.

📞 Contact Buwalda Mortgage Services today to learn more about qualifying for a conventional loan in California and get pre-approved for your next home.