What Is a Conventional Loan?

A conventional loan is simply a mortgage that is not backed by a government agency. It is the most commonly used home loan in California — and understanding how it works is the first step toward using it to your advantage.

The basic definition

A conventional mortgage is a home loan not insured or guaranteed by a federal government agency such as the FHA, VA, or USDA. Instead, conventional loans follow guidelines set by two government-sponsored enterprises: Fannie Mae and Freddie Mac. Private lenders like Lendia originate these loans and typically sell them into the secondary market, where Fannie Mae and Freddie Mac purchase them.

Because the government does not insure conventional loans, lenders rely on the borrower’s creditworthiness — credit score, income, assets, and debt levels — to assess risk. In exchange, conventional loans offer significant flexibility: they can be used for primary residences, second homes, and investment properties, and come in a wide range of loan amounts and structures.

Conforming vs. non-conforming

Not all conventional loans are the same. Within the category there is an important distinction:

• Conforming conventional loans stay within the loan limits set annually by the FHFA. For 2025, the standard limit is $832,750 for a single-unit property.
• High-balance conventional loans exceed the standard limit but stay within the elevated caps for high-cost areas. In many California counties, this limit is up to $1,249,125 for a single unit.
• Jumbo loans exceed even the high-balance limits and follow different, lender-specific guidelines.

How a conventional loan works

When you apply, your lender collects income, employment, asset, and credit documentation. The file is run through an automated underwriting system — Fannie Mae’s Desktop Underwriter (DU) or Freddie Mac’s Loan Product Advisor (LPA) — which analyzes risk and issues an approval recommendation. If approved, you close the loan with a private lender, which then sells it to Fannie Mae or Freddie Mac. This keeps capital flowing and mortgage money available.

Who uses conventional loans?

Conventional loans serve the broadest range of borrowers of any loan type — first-time buyers putting 3% down, repeat buyers, self-employed borrowers, second-home purchasers, and real estate investors. Because they carry no upfront mortgage insurance premiums like FHA loans, they are often the most cost-effective option for borrowers who meet the credit and down payment requirements.