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Conventional Loans in California: Fixed-Rate and ARM Explained.

A conventional loan is the most common type of home loan in California. It is not backed by a government program like FHA or VA. Instead, it follows rules set by Fannie Mae and Freddie Mac. This page explains how conventional loans work, the two main flavors (fixed and ARM), and who they fit best — in simple words.

If you have decent credit and some savings, a conventional loan is often the lowest-cost path over time. Let's see why.

A happy couple holding a paper house cutout after getting a conventional loan
Quick answer

A conventional loan in California needs about a 620+ credit score and as little as 3% down. If you put down less than 20%, you pay private mortgage insurance (PMI) — but unlike FHA, you can remove PMI later once you reach about 20% equity. For 2026, conventional loans stay "conforming" up to $832,750 in most counties and $1,249,125 in high-cost counties.

What this means

"Conventional" simply means the loan is not insured by the government. Lenders rely on your credit, income, and down payment instead.

Conventional loans come in two main types:

Most California buyers choose a fixed-rate loan for the peace of mind. ARMs can make sense for buyers who plan to move or refinance within a few years.

Fixed-rate: Your interest rate never changes. Your principal and interest stay the same for the whole loan.
Adjustable-rate (ARM): Your rate is fixed for a few years, then can go up or down based on the market.
Step by step

How It Works (Step by Step)

1
Get pre-approved. A lender checks your credit, income, and savings.
2
Pick fixed or ARM. Decide if you want a steady rate or a lower starting rate that can change.
3
Choose your down payment. As little as 3%, or more to lower your payment and skip PMI at 20%.
4
Stay under the limit. If your loan is under your county's conforming limit, you get standard terms.
5
Pay PMI if under 20% down. This monthly fee can be removed later as you build equity.
6
Close and build equity. Each payment grows your ownership.

Fixed-Rate vs ARM (Quick Compare)

FeatureFixed-rateARM (e.g., 5- or 7-year)
Starting rateSteady the whole timeOften lower at first
After the fixed periodNo changeCan rise or fall
Best forStaying long termMoving or refinancing in a few years
RiskVery lowPayment could rise later

See Fixed vs ARM for a deeper comparison.

2026 California Conforming Limits

Area2026 one-unit conforming limit
Most California counties$832,750
High-cost counties (Los Angeles, Orange, San Francisco, San Mateo, Santa Clara, and others)up to $1,249,125

Loans between $832,750 and your county's high-cost ceiling are called high-balance (or "super-conforming") loans. Loans above the ceiling are jumbo loans. See High-Balance (County Limits) and Jumbo.

Requirements (At a Glance)

RequirementTypical conventional rule
Credit score620+ (higher scores get better terms)
Down payment3% (often first-time buyers), 5%+ otherwise
PMIRequired under 20% down, removable later
Debt-to-incomeOften up to about 45%–50%
PropertyPrimary home, second home, or investment

Benefits

PMI can be removed. Once you reach about 20% equity, you can ask to drop it.
Lower long-term cost for strong credit. Good scores often beat FHA pricing.
Flexible. Works for primary homes, second homes, and investment properties.
Low down payment options. As little as 3% for many buyers.
No upfront mortgage insurance fee like FHA's 1.75% charge.

Potential Drawbacks (The Honest Part)

Stricter credit. Lower scores may not qualify or may pay more.
PMI under 20% down. It is an added monthly cost until you build equity.
ARM risk. If you choose an ARM, your payment could rise after the fixed period.
Limits in high-cost areas. In pricey California counties, you may need a high-balance or jumbo loan.
Real-world California examples

What it looks like in practice

Example 1 — 5% down, plan to drop PMI in San Diego.
Example 1 — 5% down, plan to drop PMI in San Diego.

Elena buys a $600,000 home with 5% down. She pays PMI now, but plans to request removal once her equity reaches about 20% through payments and rising value.

Example 2 — Strong credit beats FHA in Sacramento.
Example 2 — Strong credit beats FHA in Sacramento.

Marcus has a 760 score. A conventional loan with 5% down costs him less over time than FHA, mainly because he can remove PMI later and avoids FHA's lifetime insurance.

Example 3 — ARM for a short stay in San Jose.
Example 3 — ARM for a short stay in San Jose.

The Kim family plans to move in about six years. They choose a 7-year ARM with a lower starting rate, knowing they expect to sell before the rate can adjust.

Examples are for learning only. Your numbers and eligibility depend on your finances and the home.

Common mistakes

1Assuming FHA is always easier or cheaper. With strong credit, conventional often wins. See FHA vs Conventional.
2Forgetting to remove PMI. Many people pay it longer than needed.
3Choosing an ARM without a plan. Only pick an ARM if you expect to move or refinance.
4Ignoring the conforming limit. In high-cost counties, you may cross into high-balance or jumbo.
5Maxing out your budget. Just because you qualify does not mean you should borrow the most.
6Not comparing fixed vs ARM costs. Look at both the starting rate and the long-term risk.
Good questions

Frequently asked questions

Usually 620 or higher. Higher scores generally get better terms.

Next steps

Compare conventional against FHA

A conventional loan is often the best long-term value for buyers with solid credit — mainly because you can remove PMI later. The smart move is to compare it directly against FHA. EZ Online Mortgage can show conventional and FHA side by side for your real numbers so you can choose the lowest true cost.

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Keep learning

This page is for education only. It is not a loan offer or a promise of approval, rates, or terms. Qualification depends on your individual circumstances. Equal Housing Opportunity · NMLS #362311 · CA DRE #01871814.

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