Types of Home Loans Explained: A 2026 Guide for California Buyers

Most home loans fall into four main types: conventional, FHA, VA and USDA. Each one comes as a fixed-rate or adjustable-rate loan, and anything above the local conforming limit is a jumbo loan. The right choice depends on your down payment, credit, how long you plan to stay and where the home is.

In Northern California, loan size matters as much as loan type. FHFA’s 2026 conforming limit for a one-unit home is $897,000 in Sonoma County, $1,017,750 in Napa County and $1,249,125 in Marin and San Francisco. Many buyers here end up comparing a conventional loan with a jumbo loan, not just FHA with conventional.

Rates also shape the decision. Freddie Mac’s Primary Mortgage Market Survey put the average 30-year fixed rate at 7.32 percent and the 15-year at 6.68 percent for the week of October 22, 2026. Your own rate depends on credit, down payment, loan size and points.

The main loan types at a glance

Conventional loans

A conventional loan is not insured or guaranteed by a government agency. Most are “conforming,” which means they meet Fannie Mae and Freddie Mac rules and fall under the FHFA loan limit for the county. The CFPB notes that conventional loans make up the majority of mortgages and typically cost less than FHA loans, though they can be harder to qualify for.

• Down payment: Fannie Mae’s HomeReady program allows 3 percent down for eligible lower-income borrowers. Standard programs vary.
• Mortgage insurance: with less than 20 percent down you pay private mortgage insurance (PMI). Under federal rules you can ask to cancel it when your balance reaches 80 percent of the home’s original value, and it generally ends automatically at 78 percent if you are current.
• Who it suits: buyers with solid credit and enough savings, especially in the conforming range.

Jumbo loans

A jumbo loan is any loan above the conforming limit. In Marin, San Francisco and much of Napa, that is common. A $1.2 million loan is conforming in Marin but jumbo in Sonoma County.

Jumbo lenders set their own rules. Expect closer review of income, more cash reserves and often a bigger down payment. Rates can be competitive with conforming loans, so shop at least two or three lenders. Some buyers use a conforming first loan plus a second loan to stay under the limit. Compare the total cost both ways.

FHA loans

FHA loans are insured by the Federal Housing Administration. They allow 3.5 percent down and are more flexible on credit, which makes them popular with first-time buyers.

• Loan limits: FHA limits are set by county. HUD’s 2026 one-unit ceiling in high-cost areas is $1,249,125 and the national floor is $541,287. Look up your county on HUD’s FHA limits tool before you shop.
• Mortgage insurance: an upfront premium of 1.75 percent of the base loan, plus an annual premium. Since March 2023, the annual rate for most 30-year loans with less than 5 percent down is 0.55 percent on loans up to $726,200 and 0.75 percent above that.
• Condos: ask early whether the project is eligible for FHA financing.

VA loans

VA-backed loans serve eligible veterans, service members and some surviving spouses. According to the VA, borrowers with full entitlement have no VA loan limit, as long as they qualify with the lender and the appraisal supports the price. In most cases the VA guaranty lets you buy with no down payment.

Most borrowers pay a one-time VA funding fee, which can be financed. Some borrowers are exempt. Ask your lender to confirm your fee and entitlement before you write an offer.

USDA guaranteed loans

The USDA Section 502 Guaranteed Loan offers 100 percent financing for homes in eligible rural areas. Household income cannot exceed 115 percent of the area median, the home must be your primary residence, and the loan is a 30-year fixed. Parts of rural Sonoma, Mendocino and Solano counties may qualify. Check any address on USDA’s eligibility map.

Fixed-rate vs. adjustable-rate

Every loan type above comes in fixed or adjustable versions.

• Fixed-rate: the rate and principal-and-interest payment never change. Most borrowers choose this. A 15-year term usually has a lower rate and much lower total interest, but a higher monthly payment.
• Adjustable-rate (ARM): the rate is fixed for an introductory period, then adjusts based on an index plus a margin, within any caps. The starting rate is often lower. The CFPB warns that payments can rise sharply later.

An ARM can make sense if you expect to sell or refinance before the fixed period ends. Before choosing one, ask the lender for the highest possible rate and payment and make sure you could afford it.

Specialized loans

Construction loans

These fund building a new home or a major remodel, paid out in stages as work is done. Many convert to a permanent loan at completion. They are common for rural lots and rebuilds. Our guide to land, building lots and ADUs in Sonoma County covers the permitting side.

Bridge loans

A short-term loan against your current home that helps you buy the next one before you sell. Bridge loans cost more than standard mortgages, so price out alternatives such as a home equity line or a sale with a rent-back.

Home equity loans and HELOCs

Second loans against equity you already have. A home equity loan pays a lump sum at a fixed rate. A HELOC works like a credit line with a variable rate.

Reverse mortgages (HECM)

For homeowners 62 and older. You make no monthly loan payment, but interest and fees are added to the balance. You must keep paying property taxes and insurance and live in the home. HUD’s 2026 HECM limit is $1,249,125. The CFPB stresses that a reverse mortgage “is not free money.”

Assumable loans

FHA, VA and USDA loans can often be assumed by a qualified buyer, keeping the seller’s rate. You still need to cover the gap between the loan balance and the price, and the servicer must approve the buyer.

Loans for bank-owned homes

REO and HUD properties often have condition issues that affect financing. See our guide to financing a bank-owned home.

California down payment help

The California Housing Finance Agency (CalHFA) offers first mortgages paired with assistance. Its MyHome program is a deferred-payment second loan of up to 3.5 percent of the price with FHA, or 3 percent with conventional. Dream For All, a shared-appreciation loan for first-generation buyers, opened a 2026 application window from February 24 to March 16 and selected applicants at random. Check CalHFA for future rounds.

How to choose

1. Check your credit and fix any errors first.
2. Decide on a monthly payment you are comfortable with, including taxes, insurance and any HOA dues.
3. Find your county’s conforming and FHA limits.
4. Get Loan Estimates from at least two or three lenders. Lenders must provide one within three business days of your application.
5. Compare rate, points, fees and mortgage insurance, not just the rate.

Our home financing page and the Sonoma County mortgage and affordability guide go further on local numbers.

Questions people ask

What is the most common type of mortgage?

The 30-year fixed-rate conventional loan. The CFPB says most borrowers choose a fixed rate, and conventional loans make up the majority of mortgages.

Do I need 20 percent down?

No. FHA allows 3.5 percent, some conventional programs allow 3 percent, and VA and USDA can allow zero. Under 20 percent on a conventional loan, you will pay mortgage insurance.

Is a jumbo loan harder to get?

Usually, yes. Lenders tend to want stronger credit, more documented income and larger reserves. Rates are not always higher, so compare offers.

Can I deduct mortgage interest?

If you itemize, interest on up to $750,000 of acquisition debt is generally deductible under IRS rules for loans taken out after December 15, 2017. Tax rules change, so talk to a tax adviser about your situation.

Should I pick an ARM if rates are high?

Only if you understand the worst-case payment and have a realistic plan to sell or refinance. Rates may not fall on your timeline.

Ready to see what you qualify for and which homes fit? Start with our step-by-step buying process, or talk with our team about lenders we have worked with in your county.

Sources & notes

• Primary Mortgage Market Survey, Freddie Mac (week of October 22, 2026)
• FHFA Announces Conforming Loan Limit Values for 2026 and 2026 county loan limit list, Federal Housing Finance Agency
• FHA Announces 2026 Loan Limits, U.S. Department of Housing and Urban Development
• Mortgagee Letter 2023-05: Reduction of FHA Annual Mortgage Insurance Premium Rates, HUD
• VA Home Loan Limits, U.S. Department of Veterans Affairs
• Single Family Housing Guaranteed Loan Program, USDA Rural Development
• HomeReady Mortgage, Fannie Mae
• Loan Options, What Is an ARM?, Removing PMI, Reverse Mortgages and Loan Estimate, Consumer Financial Protection Bureau
• Homebuyer Programs, California Housing Finance Agency
• Publication 936, Home Mortgage Interest Deduction, Internal Revenue Service

Last reviewed October 2026 by Matthew Martinez.