WASHINGTON -- Military veterans will be able to use their government benefits to purchase more expensive houses as a result of an increase in the limit on GI loans that are bundled into securities for sale to investors on the secondary mortgage market.

Effective on Jan. 1, Ginnie Mae, the federal agency that pools mortgages guaranteed by the Department of Veterans Affairs, raised the ceiling on loans eligible for pooling from $322,700 to $333,700.

Borrowers seeking no-downpayment VA loans will still be limited to mortgages of no more than $240,000. But those who have some cash to put into the deal now will be able to borrow an amount up to the new Ginnie Mae limit.

The change "will help mostly repeat buyers who have some equity from the sale of a previous residence," said Keith Pedigo, director of the VA's loan guaranty service.

In fiscal '03, the VA backed a record 490,000 loans totalling nearly $63 billion. In nearly a third of those loans, borrowers used their GI home loan benefit for a second or third time.

The vast majority of the country's 24 million veterans qualify for the benefit, which is known as an "entitlement."

VA loans are made by mortgage companies, banks and other lenders. If the borrower defaults, the VA promises to reimburse the lender for losses up to the amount of the VA guarantee.

The guarantee is equal to 25 percent of the loan amount, up to a maximum of $60,000. Consequently, an eligible veteran can borrow up to $240,000 without putting up any of his own money.

With the higher Ginnie Mae limit, though, those with as much as $23,425 in cash can borrow up to $333,700. For every $4 above $240,000, a borrower must put up $1 of his own money.

Mortgage rates on VA loans are usually slightly above the market for conventional loans. But there is no mortgage insurance because the loan is guaranteed, not insured.

However, borrowers must pay a one-time funding fee at closing. And under a law passed by Congress in the waning days of the 2003 session, repeat borrowers now must pay a higher rate than first-time users.

As of Jan. 1, the fee is 2.2 percent for active duty personnel and 2.4 percent for reservists. But on a subsequent use, the charge is 3.3 percent for all users.

The new Ginnie Mae limit is the same as the ceiling that went into effect on Jan. 1 on loans that can be purchased by Fannie Mae and Freddie Mac.

The two giant government-sponsored enterprises buy loans from local lenders and package them into securities for sale to investors world-wide.

Also on Jan. 1, the maximum loan amounts that can be insured by the Federal Housing Administration were raised to $290,319 in high-cost areas and $160,176 in most other places. By law, the FHA ceiling is set at 87 percent of the Freddie Mac limit in high cost areas and 48 percent of the Freddie Mac ceiling elsewhere.

The limit on the VA guaranty was last raised in January 2002, when it was increased for the first time in seven years from $50,750 to $60,000.

Although housing interests would like to see an even higher ceiling, the VA's Pedigo says that neither Congress nor the White House has shown any interest in another increase.

But one is "certainly needed," Pedigo says. "$240,000 doesn't get you much of a house in most high-cost areas."

Since the loan guarantee program was enacted in 1944 as part of the Servicement's Retirement Act, better known as the GI Bill, more than 17 million veterans have used the benefit.

Published: January 7, 2004

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.