Conventional Loans California
With conforming or conventional loans, California homes are typically easier to afford than with government-sponsored mortgages — the conforming loan limit is more likely to cover the average price of $754,900. District Lending can help you navigate the complexities of the California mortgage market and find the cheapest, safest, and least stressful way of purchasing property in the Bear State.
In most of the country, conventional mortgage loans are capped at $766,550 in 2024. However, conventional mortgages in California have a distinctive feature that’s relatively rare in the rest of the US. Many coastal counties have higher conforming loan limits, ranging from $838,350 to $1,149,825. These are sometimes called high-balance conventional mortgages, and their limit is higher due to exceptionally steep local real estate prices. Buying a home in California is incredibly challenging, so at District Lending, we provide a personalized approach to help you buy the property you want.
Conventional Loans in California
A conventional mortgage loan is a mortgage loan that follows the guidelines set by Freddie Mac and Fannie Mae and is not backed by any government agency such as the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or Department of Agriculture (USDA) loan programs. Also, unlike government-backed loans, conventional loans can be used on all property types, whether that’s residential or investment property.
In California, finding a conventional mortgage loan with fast pre-qualification is essential, as the market is even more competitive now, with 37.5% of properties selling above list price in December 2023, 10.1 percentage points more than in the year before.
California Conventional Loan Requirements
Along with Fannie Mae and Freddie Mac, mortgage companies have their own requirements for conventional loans, and we will go through all of them below.
Down Payment
Although the most common down payments are between 5% and 20% of the purchase price, some lenders in California provide conventional loan programs allowing as little as 3% down payment for people with strong borrower profiles. However, choosing a 20% down payment can lower your monthly payment and improve the affordability of your new house by removing the requirement for private mortgage insurance (PMI).
Payment Assistance Programs in California
There are several important down payment, closing cost, and other conventional loan programs in California, especially for first-time homebuyers:
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HomeOne loans
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California Dream For All Shared Appreciation Loan program
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The CalHFA CalPLUS Conventional Loan Program
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CalHFA Conventional Zero Interest Program (Conventional ZIP)
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MyHome Assistance Program
Counties typically have local assistance programs, for which it’s best to contact your loan officer. Your dedicated mortgage professional at District Lending will ensure you get the best programs to save money, as we have all the information and experience in handling mortgage options.
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Private Mortgage Insurance
Private mortgage insurance (PMI) is needed for home loans with less than a 20% down payment. Unlike mortgage insurance, which applies to certain government-backed loans, PMI can be eliminated when equity reaches 20%. Also, the average PMI rate in California ranges between 0.58% and 1.86% of the loan amount, so it’s an annual expense you need to consider.
Interest Rates
For borrowers with good credit, conventional mortgage interest rates can be more competitive, making them a desirable choice for those trying to reduce their monthly payments. As of the beginning of 2024, the national average 30-year fixed mortgage APR was 6.99%, while the slightly higher refinance APR is 7.15%. This makes for a difficult but manageable scenario.
In California, rates are gradually rising, with a 30-year fixed mortgage’s annual percentage rate (APR) of 7.03% compared to a 15-year fixed mortgage’s lower rate of 6.44%. This subtle uptick emphasizes how crucial it is for people hoping to purchase a property in California to make timely and well-informed decisions.
Credit Score
To obtain good loan conditions on a conventional loan, you should have a high credit score, and the average Californian score of 722 should be more than enough. Of course, this is not the median credit score, and it fails to illustrate the credit history of a large swath of Californians.
For most lenders, 620 is the cutoff score for conventional mortgages, but factors such as down payment size, liquid assets, and the debt-to-income ratio also play a role. Better scores can result in a lower interest rate, which is especially important in California’s high-stakes, competitive home market, as even a slight increase can significantly impact the financing offers you receive from lenders.
California Conventional Loan Limits
Conventional loan limits outline the maximum loan amount you are permitted to borrow, in compliance with the standards of Freddie Mac (Federal Home Loan Mortgage Corporation) and Fannie Mae (Federal National Mortgage Association).
In 2024, the FHFA baseline is $766,550 for one-unit houses, which is 5.5% more than the previous year. These standards are based on median house prices in a given area, so some counties have higher limits for conforming mortgage loans. For single-family homes, counties with higher limits include:
Alameda – $1,149,825
Contra Costa – $1,149,825
Los Angeles – $1,149,825
Marin – $1,149,825
Monterey – $1,017,750
Napa – $1,017,750
Orange – $1,149,550
San Benito – $1,149,550
San Diego – $1,006,250
San Francisco – $1,149,825
San Luis Obispo – $929,200
San Mateo – $1,149,825
Santa Barbara – $838,350
Santa Clara – $1,149,825
Santa Cruz – $1,149,825
Sonoma – $877,450
Ventura – $954,500
In other counties, the limit is the one set by the two government-sponsored enterprises. It’s $766,550 for a single-unit home, and everything above that is considered a jumbo loan, which comes with higher mortgage rates and more stringent requirements.
Conforming Loan Versus Non-Conforming Loan
Conforming loans follow the maximum loan amounts and other rules established by Fannie and Freddie, and they are also not backed by any government agency and require PMI. Non-conforming loans include VA, USDA, FHA, and jumbo loans, as these exceed the upper loan limit.
Closing Costs
Closing costs, which include fees for title insurance, appraisals, loan processing, and more, are a crucial part of the home-buying process in California. These expenses usually vary depending on the transaction and range from 2% to 5% of the buying price of the house. This means that for buyers in California, budgeting for these costs is essential, particularly in more expensive markets.
Personal Finances
Lenders carefully examine your personal finances, including your gross income, tax returns, and debt-to-income ratio, which must be below 43% for most lenders. However, some may accept higher DTI if you’re stronger than average in requirements such as down payment size.
When applying for conventional loans, self-employed borrowers in California encounter some difficulties because demonstrating income can be complicated and requires a lot of evidence to meet mortgage lender standards. There are programs and flexible lending procedures created primarily to assist self-employed buyers.
Contact District Lending Today
District Lending stands ready to help you at every turn, providing customized lending options tailored to your needs. With our in-depth understanding of traditional loan restrictions and our committed support, we ensure you have all the information you need to make the best choice. If you’re in the process of house hunting, we can help you with resources such as our mortgage affordability calculator.
Instead of doing it alone, let District Lending act as your guide. Contact us for a free quote and find out how we can confidently and readily assist you in opening the door to your ideal house.
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