Conventional Loans in California
A conventional loan is a mortgage that is not backed by a government agency like FHA or VA. It is the most common type of home loan and offers the most flexibility.
If you have decent credit and a steady income, a conventional loan is probably what you picture when you think of a mortgage.
Who it's a good fit for
Conventional loans are a great fit if your credit score is 620 or above, you have a steady income, and you want flexibility. You can use a conventional loan for a primary residence, a second home, or an investment property. If you plan to put 20 percent down, conventional is almost always the cheapest option because you avoid mortgage insurance entirely. Even with less than 20 percent down, conventional PMI is typically cheaper than FHA mortgage insurance and can be removed once you reach 20 percent equity.
Who it's not a fit for
Conventional loans may not be the best fit if your credit score is below 620, you have a very small down payment, or you have had a recent credit event like a bankruptcy. In those cases, FHA may be a better option. Conventional loans also have stricter DTI requirements than FHA, so if your debts are high relative to your income, FHA might give you more room.
Requirements
Minimum Credit Score
620 (740 or above for the best rates)
Down Payment
3% for first-time buyers, 5% otherwise, 20% to avoid PMI
DTI Limit
Up to 50% for well-qualified borrowers, most lenders target 45% or below
Reserves
2 to 6 months depending on the property type and risk profile
Pros and cons, stated honestly
Advantages
Things to consider
Costs involved
The main cost to watch on a conventional loan is PMI (private mortgage insurance) if you put less than 20 percent down. PMI typically costs 0.5 to 1.5 percent of the loan amount per year, depending on your credit score, loan-to-value ratio, and loan amount. The good news is PMI can be removed automatically once your loan balance reaches 80 percent of the home value, or you can request removal earlier if the home appreciates. There is no upfront mortgage insurance premium like FHA charges. Closing costs typically run 2 to 5 percent of the loan amount.
The process and rough timeline
Get Pre-Approved
1 to 3 daysWe review your credit, income, and assets. I compare conventional options from multiple lenders side by side.
Find a Home and Make an Offer
Varies by buyerYou shop with your agent. A conventional pre-approval is strong and widely accepted by sellers.
Appraisal and Processing
5 to 10 daysWe order the appraisal, verify the title, and process your loan file for underwriting.
Underwriting and Final Approval
5 to 10 daysThe underwriter reviews everything and issues a final approval with any conditions. I handle those.
Close and Get Your Keys
25 to 40 days totalYou sign final documents, the loan funds, and you get the keys.