FHA vs. conventional is the first financing decision most California buyers face — and it’s not always obvious which way to go. The answer depends on your credit score, your down payment, and the specific property. I’ve been working through this analysis with buyers across the Bay Area and California since 2007. I’m Michael DiVita — DRE #01818285 | NMLS #323700, DiVita Home Finance, Tiburon, CA. Call me at (800) 239-1103.

The Core Difference

FHA loans are insured by the Federal Housing Administration and allow lower credit scores and down payments. Conventional loans follow Fannie Mae/Freddie Mac guidelines — stricter on credit, but no mandatory mortgage insurance if you put 20% down, and mortgage insurance cancels at 80% LTV if you put less than 20% down. In California, where purchase prices are high and buyers often have significant equity, the conventional path becomes more attractive once credit and down payment requirements are met.

Down Payment Comparison

FHA: 3.5% down with 580+ credit; 10% down with 500–579 credit
Conventional: 3% down (HomeReady/Home Possible) with 620+ credit; 5–10% more common; 20% to avoid PMI

On a $750,000 California home: FHA minimum = $26,250. Conventional minimum (5%) = $37,500. FHA requires less down, but the total cost picture is more complicated once mortgage insurance is factored in.

Mortgage Insurance Comparison

FHA MIP (Mortgage Insurance Premium): 1.75% upfront (financed into loan) + 0.55–0.85% annual. For FHA loans with less than 10% down, MIP lasts the entire loan term — it never falls off regardless of how much equity you build. This is the biggest long-term cost disadvantage of FHA vs. conventional for California buyers who build equity quickly through appreciation.

Conventional PMI: 0.5–1.5% annually. Cancels automatically at 78% LTV, or you can request removal at 80% LTV. On a $750,000 purchase with 10% down, PMI typically cancels in 5–7 years in normal appreciation environments — much sooner in a market like Marin or San Francisco.

Credit Score Thresholds

740+ credit: Conventional wins on rate every time
680–739: Competitive — run both scenarios
620–679: FHA often wins on rate despite MIP
Below 620: FHA only (conventional requires 620 minimum at most lenders)

California Loan Limits (2026)

Conventional conforming loan limits in 2026: $832,750 standard (most California counties); up to $1,249,125 in the highest-cost counties (San Francisco, Marin, San Mateo). Alameda, Contra Costa, Santa Clara, Los Angeles, and Orange counties are at $1,209,750. For purchases above the county conforming limit, you’ll need a jumbo loan regardless of FHA vs. conventional.

FHA loan limits are set by a different HUD formula and vary by county. The FHA baseline is $806,500, with high-cost California counties reaching their own FHA-specific limits — check HUD’s FHA mortgage limits tool for your target county and year.

Property Condition Differences

FHA appraisers flag more property condition issues than conventional appraisers. Things like peeling paint, exposed electrical, missing railings, and deferred maintenance that a conventional appraisal might overlook can result in required repairs before an FHA loan closes. In the Bay Area, where many homes are older and sellers may resist making repairs, this creates friction. Most competitive Bay Area sellers prefer conventional financing offers for this reason — not just the lower down payment, but the smoother appraisal process.

When to Choose FHA

FHA makes sense when: credit score is below 680; you have the minimum 3.5% down but not more; you’re in a high-DTI situation (FHA allows up to 57% DTI in some cases); or the property is in a price range well below the FHA limit. For most California buyers in Bay Area markets where prices are $1M+, FHA becomes less relevant because the loan limits are binding.

When to Choose Conventional

Conventional wins when: credit score is 720+; you can put 10–20% down; you’re buying a condo (non-warrantable condos don’t qualify for FHA); you want mortgage insurance to eventually cancel; or you’re purchasing above FHA limits. For most Marin County and Bay Area buyers with reasonable credit and income, conventional is the right answer.

Frequently Asked Questions

Can I get an FHA loan in San Francisco or Marin County given home prices?

Yes, but FHA loan limits cap out below median prices in most Bay Area markets. FHA limits are county-specific and set by HUD annually. In many Bay Area counties, the FHA limit is well below the median sale price, which means you’d either need to bring the difference in cash or use a different loan type. For most Bay Area buyers, conventional jumbo or high-balance conforming loans are more practical because they align better with actual price points.

Does FHA mortgage insurance ever go away in California?

Only if you put 10%+ down — in that case, FHA MIP falls off after 11 years. With less than 10% down (the most common scenario), FHA MIP lasts the entire loan term. This is a significant long-term cost difference vs. conventional PMI, which cancels automatically at 78% LTV. California buyers who put less than 10% down on an FHA loan should factor in refinancing to conventional once they reach 20% equity — which happens relatively quickly in appreciating Bay Area markets.

Which is better for first-time buyers in California — FHA or conventional?

It depends entirely on your credit score and available down payment. If your score is 720+ and you can put 5–10% down, conventional is almost always better — lower long-term cost because PMI cancels. If your score is 660–680, FHA may offer a better rate despite the ongoing MIP. Below 620, FHA is often the only option. DiVita Home Finance runs both scenarios side-by-side for every first-time buyer — call (800) 239-1103 to see the exact comparison for your situation.

Related Resources

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DiVita Home Finance | Tiburon, CA | Licensed since 2007. DRE #01818285 | NMLS #323700.

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FHA vs. Conventional Loan in California: Which Is Better for You?