A conventional loan is a mortgage that is not backed or secured by a government entity. It is available through and guaranteed by either a private lender or one of the two government-sponsored enterprises, Fannie Mae and Freddie Mac.
Some of the benefits of conventional loans include:
- Loan amounts up to $647,200 (2022) in California
- Fixed or adjustable rates
- Down payments as low as 3% for primary residences
- Primary, second, and investment property options
A conventional mortgage is best for borrowers with a minimum of a 620 FICO score, stable employment and income, and a debt-to-income ratio of less than 50%.
Down payment requirements can vary based on your situation and the type of loan or property you’re buying and can range from 3% to 20% or more. If you put down less than 20% on a conventional loan, you’ll be required to pay for private mortgage insurance (PMI).
Most conventional mortgages are referred to as “conforming loans,” which means they meet the requirements to be sold to Fannie Mae or Freddie Mac. For a conforming conventional loan, your loan must fall within the loan limits set by Fannie Mae and Freddie Mac. The loan limit changes annually and is greater for high-cost areas (which applies to some areas in California).