Conventional Loans in San Diego: Rates, Requirements & Limits

Conventional loans account for roughly two-thirds of all mortgages in the United States and an even higher share in San Diego County, where strong incomes and competitive buyers favor the flexibility conventional financing offers. Understanding how they work — and how they compare to FHA and VA alternatives — is the foundation of any smart home-financing decision.

What Is a Conventional Loan?

A conventional loan is any mortgage that is not backed by a government agency like the FHA, VA, or USDA. Instead, conventional loans are originated by private lenders and typically sold to Fannie Mae or Freddie Mac, the two government-sponsored enterprises (GSEs) that set the rules most conventional lenders follow.

Because conventional loans aren't insured by the government, they rely more heavily on the borrower's credit profile, income, and down payment. In return, they offer advantages like higher loan limits, the ability to remove mortgage insurance, and fewer property-condition restrictions.

Conventional Loan Requirements

Conventional underwriting is more numbers-driven than FHA. Lenders use Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Product Advisor to evaluate applications automatically based on these baseline factors:

Credit Score Requirements

• Minimum 620 credit score for most conventional loans
• Best pricing typically at 740 or above
• Credit scores below 680 trigger higher rates and PMI premiums
• Scores are pulled from all three bureaus; the middle score is used

Down Payment Requirements

• As little as 3% down for first-time buyers (Conventional 97, HomeReady, Home Possible)
• 5% down standard for repeat buyers
• 10-15% down typical for second homes
• 20-25% down required for investment properties
• 20% down eliminates private mortgage insurance (PMI)

Debt-to-Income (DTI) Ratios

• Maximum 45% DTI in most cases (50% with strong compensating factors)
• Front-end ratio (housing only) typically capped at 36-38%
• Automated underwriting may approve higher DTIs with strong reserves or credit

Income & Employment

• Two-year employment history, ideally in the same field
• Self-employed borrowers need two years of tax returns plus YTD profit/loss statements
• Commission and bonus income averaged over 24 months
• Rental income from other properties supported with tax returns and lease agreements

Property Requirements

• Primary residences, second homes, and investment properties all eligible
• Standard appraisal required; no FHA-style minimum property standards
• Condominiums must meet Fannie Mae or Freddie Mac project approval guidelines
• Non-warrantable condos require portfolio or jumbo financing

Private Mortgage Insurance (PMI)

When you put down less than 20% on a conventional loan, lenders require private mortgage insurance to protect against default. Unlike FHA mortgage insurance, PMI has several key advantages:

• Automatic removal at 78% LTV based on the original home value
• Request removal at 80% LTV (may require a current appraisal)
• No upfront premium in most structures (unlike FHA's 1.75% UFMIP)
• Cost varies with credit score, LTV, and loan type — typically 0.3%-1.5% annually

Conventional vs. FHA Loans

The conventional-vs-FHA decision trips up more San Diego buyers than any other single loan question. Here's a side-by-side look.

Conventional Loan Programs

"Conventional" is actually an umbrella term covering several distinct programs. The right one depends on your down payment, income, and property type.

Conventional 97

• 3% down payment for first-time homebuyers
• Fixed rate, 30-year term
• Standard PMI based on credit and LTV
• No income limits

HomeReady (Fannie Mae)

• 3% down, 620 minimum credit score
• Reduced PMI compared to standard conventional
• Income limit: 80% of area median income (AMI)
• Rental income from a non-borrower can be used to qualify
• Homebuyer education course required

Home Possible (Freddie Mac)

• 3% down, 660 minimum credit score
• Reduced PMI, especially for lower credit scores
• Income limit: 80% of AMI
• Co-borrowers don't need to occupy the home

Standard Conventional (5-20% Down)

• 5% down minimum for repeat buyers
• Most flexible property type rules
• Better pricing at 10%, 15%, and 20% down tiers
• No income limits

High-Balance Conforming (San Diego)

• Loans between $766,550 and $1,209,750 in San Diego County
• Slightly higher rates than standard conforming
• Same underwriting guidelines as regular conforming
• Critical category in San Diego since most homes fall in this range

Conventional Loans in San Diego's Market

San Diego's combination of high prices and strong incomes makes it one of the largest conventional loan markets in California. A few dynamics are worth understanding.

Why Conventional Dominates Here

• High conforming limit: San Diego's $1,209,750 cap is at the federal maximum, letting most buyers stay conforming
• Competitive offers: In multiple-offer situations, listing agents often prefer conventional financing over FHA
• Condo market: Many San Diego condo projects are Fannie Mae-warrantable but not FHA-approved
• Investment properties: Conventional is the only low-down-payment option for second homes and rentals

Where FHA Beats Conventional

• Credit scores between 580 and 660
• Higher debt-to-income ratios
• Limited reserves after down payment
• Borrowers with older credit events (bankruptcy, foreclosure) within seasoning thresholds

In San Diego's 2026 market, roughly 72% of purchase loans are conventional — driven by the county's median household income, competitive offer dynamics, and the sheer number of condos that require Fannie Mae warrantability.

San Diego Association of Realtors, Q1 2026

The Application Process

The conventional loan process is similar to FHA but generally faster, since there's no FHA appraisal or property condition review required.

1. Get pre-approved. Submit income, assets, and credit to at least two lenders. Compare Loan Estimates on the same day.
2. Lock your program and rate. Decide between 30-year fixed, 15-year fixed, or an ARM based on how long you plan to own.
3. Submit a full application. Once under contract, your lender will move from pre-approval to full underwriting.
4. Order the appraisal. A standard appraisal takes 5-10 business days in most San Diego ZIP codes.
5. Clear conditions. Underwriting will request additional documentation — respond within 24 hours to keep escrow on track.
6. Receive the Closing Disclosure. Federal law requires you to have it at least 3 business days before signing.
7. Close. Sign, wire funds, fund the loan, and record with the county.

Typical Timeline

In San Diego, a purchase-money conventional loan typically closes in 21-30 days. Refinances run 30-45 days. Jumbo or high-balance loans may add 5-10 days for additional underwriting review.

Common Conventional Scenarios

Move-Up Buyer in Carmel Valley

The Nguyen family sold their first home and used $320,000 in equity as a 25% down payment on a $1,275,000 home. With 25% down they escaped PMI entirely and locked in the lowest tier of conventional pricing, despite the jumbo loan size above the conforming limit.

First-Time Buyer Using HomeReady

Priya, a nurse earning $82,000 per year, qualified for HomeReady because her income fell within the 80% AMI limit for her Chula Vista census tract. She put 3% down on a $565,000 townhome and paid roughly half the PMI she would have paid on a standard Conventional 97 loan.

Investor Buying a Rental

David used a 25% down conventional loan to buy a $725,000 duplex in North Park. Because it was an investment property, he paid slightly higher rates and needed 6 months of reserves — but the property's rental income helped him qualify without income from his day job.

Should You Choose a Conventional Loan?

A conventional loan is usually the right choice if you:

• Have a credit score of 680 or higher
• Can put down at least 5% (preferably 10%+)
• Want the option to remove mortgage insurance as your loan pays down
• Are buying a second home, condo, or investment property
• Are competing in a multiple-offer situation where loan type matters to sellers
• Have a clean credit history with no recent major events

Consider FHA or VA instead if you:

• Have a credit score below 680 or limited credit history
• Carry higher debt-to-income ratios
• Have minimal savings beyond the minimum down payment
• Are a veteran, active-duty service member, or surviving spouse (VA is almost always better)
• Are purchasing a home that wouldn't pass FHA property standards — wait, that means you'd want conventional

Getting Started

If a conventional loan looks like the right fit, start with these steps:

1. Check your credit report and resolve any errors before applying
2. Calculate your down payment target (3%, 5%, 10%, or 20%)
3. Use our mortgage calculator to see how PMI affects your monthly payment
4. Gather two years of W-2s, recent pay stubs, and two months of bank statements
5. Get pre-approved with at least two local lenders and compare Loan Estimates
6. Lock your rate once you're under contract

Conventional loans reward preparation and good credit. Buyers who come in with clean documentation, strong scores, and a clear loan program selected typically close 5-10 days faster — which can make the difference between winning and losing a San Diego home.