California loan guide
Conventional Loan in California
A conventional loan in California is a mortgage not insured or guaranteed by a federal agency, usually sold to Fannie Mae or Freddie Mac, with a 2026 one-unit loan limit of $832,750 in most counties and up to $1,249,125 in high-cost counties.
In this guide
Key numbers for 2026
| Item | Figure | Source |
|---|---|---|
| Baseline one-unit conforming limit | $832,750 | FHFA, 2026 conforming loan limit release |
| High-cost ceiling, one-unit | $1,249,125 | FHFA, 2026 conforming loan limit release |
| Highest loan-to-value for an eligible one-unit principal residence under Fannie Mae options | 97 percent | Fannie Mae, 97 percent loan-to-value options |
| Loan-to-value above which private mortgage insurance applies | 80 percent | CFPB, removing private mortgage insurance |
| Minimum credit score, manually underwritten loans (lowest figure in the matrix; higher scores apply at higher loan-to-value and debt ratios, and Desktop Underwriter casefiles carry no Fannie Mae minimum — see Requirements) | 620 | Fannie Mae, Eligibility Matrix; Fannie Mae, Selling Guide Announcement SEL-2025-09 |
The 2026 baseline limit rose because average home prices rose 3.26 percent between the third quarters of 2024 and 2025, and FHFA adjusts the baseline each year by that price change.
The high-cost ceiling is 150 percent of the baseline limit.
Who it fits, and who should look elsewhere
A conventional loan fits a buyer whose credit, income, and reserves are strong enough that private mortgage insurance is cheap or unnecessary, and who wants mortgage insurance that can end without refinancing. It fits a buyer who may buy a property that would struggle with government property standards, because conventional appraisal review is usually focused on value and marketability rather than a federal repair list. It also fits buyers of second homes and investment properties in limited cases, although those uses carry higher down payments and pricing adjustments that vary by lender.
Look elsewhere under clear numeric rules. If the loan must exceed $1,249,125, no California county conforming limit reaches it and the loan is jumbo rather than conforming. If credit history is thin or damaged and the file cannot pass automated underwriting, an FHA loan may price better even after mortgage insurance is counted. If military service gives VA eligibility, compare the VA funding fee against years of private mortgage insurance before choosing conventional financing out of habit. If household income and property location fit USDA rules, compare that program before using cash that could remain in reserves.
Requirements: program rules and lender overlays
Program rules
Fannie Mae 97 percent options are limited to a one-unit principal residence and fixed-rate mortgages with a maximum term of 30 years. Underwriting through an automated system is central to conventional approval: the system weighs credit history, loan-to-value, reserves, income stability, and debt load together rather than applying one pass-or-fail score in isolation. The property must be marketable, the appraisal must support value, and the borrower must document the source of funds used for the down payment and closing costs. Gift funds, employer assistance, and community second loans can be acceptable in defined circumstances, with documentation that shows the money is a gift or an approved subordinate loan rather than undisclosed debt.
Credit score, stated plainly: for loan casefiles created on or after November 16, 2025, Fannie Mae no longer sets a minimum credit score for loans underwritten through Desktop Underwriter; the system judges the whole file instead. Manually underwritten loans still carry score floors in the Eligibility Matrix, and the lowest figure there is 620, for a fixed-rate loan at 75 percent loan-to-value or below, with higher floors as loan-to-value and debt ratio rise. Treat 620 as the planning floor for a conventional loan, not as a promise of approval at that score.
Lender overlays
An overlay is an extra rule a lender adds on top of the agency guide. Overlays commonly appear as higher reserve expectations after closing, tighter debt-ratio caps for weaker files, stricter treatment of bonus or commission income, or extra documentation for condominiums and recent credit events. An overlay is not a program rule, and a denial under one lender's overlay does not prove another lender must reach the same result. Ask whether a condition comes from Fannie Mae, Freddie Mac, the mortgage insurer, or the lender itself, because each answer points to a different fix. Credit score is a common overlay: many lenders set their own floor at 620 or higher even though Desktop Underwriter itself no longer imposes one, so a score below one lender's floor can end a file at that lender without ending it everywhere.
Real costs
| Cost | How it works |
|---|---|
| Down payment | Set by loan-to-value; a larger down payment lowers the loan, the mortgage insurance burden, and the monthly payment at the same time. |
| Private mortgage insurance | Applies when loan-to-value is above 80 percent; the premium is set by the insurer from credit, loan-to-value, and coverage, so no single rate fits every borrower. |
| Closing costs | Lender, title, escrow, appraisal, recording, and prepaid tax and insurance items; compare them on the Loan Estimate rather than by a rule of thumb. |
On a standard conventional loan, borrower-paid mortgage insurance is removed by request once the balance reaches 80 percent of the original value on the amortization schedule, or is prepaid down to that level, provided payments are current, the payment record is clean, no subordinate lien sits behind the loan, and the home has kept its value.
If no request arrives, servicers must still stop borrower-paid coverage automatically when the scheduled balance reaches 78 percent of the original value for a borrower who is current, and coverage cannot run past the loan's midpoint in any event.
Lender-paid mortgage insurance built into the interest rate does not cancel in the same way, because the charge is embedded in the rate for the life of that loan. Borrower-paid monthly insurance is therefore often the cleaner structure for a buyer who expects income or equity to rise, even when the starting payment looks similar.
A worked California example
On a $700,000 purchase with 20 percent down, the down payment is $140,000 and the loan is $560,000.
A $560,000 loan is at or below the $832,750 baseline limit, so it is a standard conforming loan in every California county.
At exactly that down payment level the loan-to-value is at the mortgage-insurance threshold, so no private mortgage insurance is required on the structure used here. Cash to close still exceeds the down payment because closing costs, prepaid insurance, tax prorations, and escrow deposits are separate items shown on the Loan Estimate and the Closing Disclosure.
Assumed rate used only for arithmetic; not a quote. At an assumed 7 percent fixed rate over 360 months, principal and interest on the $560,000 loan is $3,725.69 a month. Total interest if the loan is held all 360 months: $3,725.69 × 360 − $560,000 = $781,248. A real quote still needs a dated, borrower-specific rate: the payment above shows the arithmetic at the stated assumption, and it will move when the actual rate moves.
How a purchase proceeds, step by step
Application and the Desktop Underwriter file
Start by giving the lender the borrower's income, assets, debts, and the signed purchase contract for the California home. Within three business days after that application is received, federal disclosure law obliges the lender to deliver or mail a Loan Estimate setting out the estimated rate, monthly payment, and closing costs for the conventional structure requested. The file is then built for Desktop Underwriter, Fannie Mae's automated system, rather than for a government insurance queue.
Documentation the automated system asks for
Expect requests for recent pay stubs, W-2 forms, bank statements covering the down payment and reserves, and signed explanations for large deposits, recent inquiries, or prior credit events. Desktop Underwriter weighs those documents together, testing earnings history and its likelihood of continuing, total monthly debts against income, credit depth, and cash left after closing, and returns findings that list exactly which items still need proof. A gift toward the down payment needs a signed gift letter plus a transfer trail showing the money was not borrowed.
Appraisal under agency rules
A licensed appraiser inspects the property and supports a market value from comparable sales, without applying a federal repair checklist of the kind government programs impose. Because a purchase loan-to-value uses whichever is lower, the contract price or the appraised value, an appraisal that lands under the price shrinks the maximum loan and leaves the buyer to add cash, renegotiate the price, or walk away under the contract's appraisal terms.
Clearing conditions and the Closing Disclosure
Work through the Desktop Underwriter conditions one by one and get each clearance in writing from the lender, since a verbal assurance does not bind the file. Federal rules require the borrower to have the Closing Disclosure in hand at least three business days before consummation, and specified changes to the loan after that delivery start a fresh three-business-day wait, which can push a conventional closing past a rate-lock or contract deadline.
Signing and funding a purchase
Signing a conventional purchase creates no federal cancellation window afterward, because purchase transactions sit outside the rescission right that Regulation Z grants for certain refinances. Contrast a refinance of a principal home, where cancellation generally runs to midnight of the third business day after the last of consummation, delivery of the rescission notice, or delivery of all material disclosures, and where refinancing again with the same creditor makes only the new money rescindable. Once the purchase documents are signed, the lender funds, the deed records with the county, and possession passes as the purchase contract provides.
Mistakes and downsides that cost money
Treating the county limit as a price limit. The limit applies to the loan amount, not the price. A buyer can purchase above the limit when the down payment brings the loan back under it, and can also be pushed into a different tier by financed costs on some programs.
Ignoring mortgage-insurance duration. A buyer who assumes insurance vanishes at 80 percent without acting can keep paying it: cancellation at that point is by written request and only when the payment-history, lien, and value conditions are met.
Draining reserves to reach a round down-payment number. A slightly smaller down payment that leaves liquid reserves can underwrite better and leaves cash for moving, repairs, and the tax and insurance bills that follow a California purchase.
Comparing loans by rate alone. Mortgage insurance, lender fees, and pricing adjustments can reverse a rate comparison within the first years of the loan, which is why the Loan Estimate's loan-cost and total-cost figures matter more than a headline rate.
Questions buyers ask
Is a conventional loan the same as a conforming loan?
A conventional loan is conforming when it meets agency size and underwriting rules, including the county loan limit. A conventional loan above the county limit is a jumbo loan and follows lender and investor rules instead.
How much down payment does a conventional loan require?
Eligible one-unit principal-residence purchases can reach 97 percent loan-to-value under Fannie Mae options, which means a down payment of 3 percent of the price in that structure. Many files use more because mortgage insurance, pricing, and debt ratios improve as loan-to-value falls.
What credit score do I need for a conventional loan?
Plan on 620. Fannie Mae no longer sets a minimum score for loans run through Desktop Underwriter on casefiles created on or after November 16, 2025, so the system weighs the whole file rather than cutting off at one number. The Eligibility Matrix still sets floors for manually underwritten loans, and its lowest figure is 620, with higher scores required at higher loan-to-value and debt ratios. Many lenders also set their own floor at 620 or higher as an overlay, and a higher score improves pricing and mortgage-insurance cost even when a lower score could pass, so 620 is the floor to plan around rather than a guarantee of approval.
When does private mortgage insurance end?
Borrower-paid coverage on a conventional loan ends in two ways: by written request once the scheduled or prepaid balance hits 80 percent of original value with payments current, a sound payment record, no second lien, and no loss of value, or automatically when the scheduled balance reaches 78 percent of original value for a current borrower, never extending beyond the midpoint of the term.
Does California change how a conventional loan works?
California changes the answer mainly through county loan limits, because many coastal counties carry the high-cost ceiling while inland counties sit at the baseline. State law does not create a separate conventional program; agency and lender rules govern the loan itself.
Can gift money be used for the down payment?
Gift money can be used when the program and insurer allow it and the gift is documented with a signed letter and a paper trail. Undocumented cash is the problem, not the gift itself, because underwriting must rule out a hidden loan.
Sources
- FHFA, Conforming Loan Limit Values for 2026, published November 25, 2025; fetched October 14, 2026.
- Fannie Mae, 97% Loan-to-Value Options; fetched October 14, 2026.
- CFPB, When can I remove private mortgage insurance (PMI) from my loan?; fetched October 14, 2026.
- CFPB, Regulation Z, 12 CFR 1026.19 and 1026.23; fetched October 14, 2026.
- Fannie Mae, Eligibility Matrix (August 5, 2026); fetched October 14, 2026.
- Fannie Mae, Selling Guide Announcement SEL-2025-09, November 5, 2025; fetched October 14, 2026.
