VA or conventional: a veteran's two routes

A VA loan is for borrowers who qualify for VA's Certificate of Eligibility, among them veterans, service members and some surviving spouses. A private lender makes it, the U.S. Department of Veterans Affairs guaranty stands behind part of it, and it has no monthly mortgage insurance. A VA purchase loan is only for a home you will live in, with an exception for active duty. A conventional loan has no government insurance or guaranty. A conforming conventional loan is written to Fannie Mae and Freddie Mac guidelines, and Fannie Mae's guidelines allow a primary residence or an investment property of one to four units, or a one-unit second home.

No. A VA loan has no monthly mortgage insurance. Instead there is a one-time VA funding fee, paid at closing or added to the loan. It is waived for a veteran receiving VA compensation for a service-connected disability and in the other cases VA lists. On a conforming conventional loan, Fannie Mae requires mortgage insurance, or another credit enhancement its charter allows, when the loan is large against the home's value. On a one-unit home you live in, the Homeowners Protection Act, subject to its conditions and exceptions, lets you ask for borrower-paid mortgage insurance to be canceled once the loan is paid down far enough against the home's original value, and ends it automatically at a later point on the loan's amortization schedule.

VA itself sets no minimum credit score. It requires that you be a satisfactory credit risk, which the lender judges from a careful analysis of your credit, and VA says some lenders set a minimum of their own. For a conforming conventional loan, Fannie Mae sets no minimum score for a file run through its automated underwriting, and at least 620, with exceptions, for one underwritten by hand, and lenders can add minimums of their own. San Luis Obispo County is a high-cost area, and Fannie Mae calls a loan subject to a high-cost area's limit a high-balance loan: to be sold to Fannie Mae, a high-balance purchase loan has to go through its automated underwriting.

No, not to buy one. VA requires that you intend to live in the home you buy as your own, and you certify that intention. A VA loan can buy a home of up to four units, as long as it is the home you will live in. If active duty keeps you away, your spouse or a dependent child living there can meet the rule, on conditions. Under Fannie Mae's guidelines, a conforming conventional loan can finance a primary residence or an investment property of one to four units, or a one-unit second home.

For a VA loan, a Chapter 7 discharge or a foreclosure does not by itself rule you out; the lender looks into what happened. Within twelve months of a discharge, VA's guidelines do not expect a lender to find you a satisfactory credit risk; within one to two years they look for new credit since then paid satisfactorily and a verified cause beyond your control. A foreclosure is weighed under the same guidelines, exceptions apply, and a self-employed borrower whose business failed has a separate test. For a conforming conventional loan, Fannie Mae's standard is four years from a Chapter 7 discharge or dismissal, or two years with documented extenuating circumstances. After a foreclosure, it is seven years from the date the foreclosure was completed, or three years with documented extenuating circumstances and added limits on the new loan. A Chapter 13 bankruptcy has separate rules under both.