The Veterans Administration (VA) Home Loan Guarantee is one of the most popular and successful benefits available to service members and veterans. In just the past year alone, the VA has guaranteed nearly 336,000 home loans. It is not surprising because at the heart of the program is the promise of purchasing a home with little or no money down. Both the GI Bill and VA Loan programs were created as part of the Servicemen’s Readjustment Act of 1944, Public Law 78-346. This landmark legislation was designed to ease the service member’s transition into civilian life -- and put them on par with their civilian counterparts. In late 2004, President George W. Bush signed the Veterans Benefits Act of 2004, dramatically updating and improving the home loan benefit.

The VA does not itself provide loans. It provides a guarantee to the lender for a certain amount of the home value, typically up to 25%, in lieu of a down payment. Such loans have other benefits, too. They limit the amount and types of fees that lenders can charge. In addition, using a VA loan guarantee obviates the need for private mortgage insurance, often saving thousands of dollars over the life of the loan. Participants in the program also get the benefit of a home appraisal and the ability to assume or allow the assumption of an existing VA Home Loan.

The only material downside to the program is that borrowers are charged a funding fee, which can be included in the loan. This one-time charge ranges from .5% to 3.3% of the entire loan amount, depending upon a person’s military status and whether it is a first or subsequent loan. Veterans receiving compensation for service-connected disabilities, or who, but for receipt of retirement pay, would be entitled to such compensation, or surviving spouses of veterans who died in service or from a service-connected disability are exempt from the fee. This could amount to between $6,000 and $9,000 in savings. Finally, the VA loan benefit can be reused, assuming that the loan is paid off (and the loan wasn’t assumed by another veteran) or some portion of the guarantee remains.

The most significant change to the VA Home Loan entitlement is that it effectively raised the maximum purchase price in 2005 for a no-down-payment home from $240,000 to $359,650. In some particularly high cost of living areas, the maximum loan amount could be up to 50% higher. The law changed how the maximum guarantee amount is calculated. Before the revision, the maximum guarantee was set at $60,000 and the maximum home price was approximately four times that or $240,000. This could only be changed through legislative action. Now, the maximum guarantee is tied to market prices. It is equal to 25% of the Freddie Mac conforming loan limit for a single-family residence. In 2005, this limit was $359,650; so the maximum guarantee is $89,912. Although “conforming loan limit” is a mouthful, it’s simply a term used to describe a loan that’s pre-packaged for sale by lenders to Fannie Mae or Freddie Mac on the secondary market; in other words, a standard loan. Every 1 January, the VA Loan Guarantee benefit will rise or fall depending on home prices. With the hot housing market, many experts believe the loan limit will rise past $400,000 in 2006. Other significant changes to the VA loan benefit include: a provision for a Specially Adapted Housing program that expands eligibility to the $50,000 grant to veterans with some types of permanent and total service-connected disabilities; a guarantee for traditional adjustable and hybrid adjustable rate mortgages, greatly expanding the loan program’s flexibility; and expanded the criteria for offering waivers of the VA loan funding fee to some classes of disabled service members on active-duty awaiting discharge.

Most active, reserve, guard, and veterans are eligible for the VA loan benefit, depending on length of service and type of discharge. Recent legislation has also relaxed time in service eligibility requirements for activated guard and reserve personnel serving in support of the Global War on Terror.

Since 1944, the VA has made the promise of home ownership a reality for more than 18 million veterans. For more information on taking advantage of this important benefit, you can visit http:// www.homeloans.va.gov/ or call the Veterans Administration at 1-800-827-1000.