Don't be surprised if you see a lot more VA loans in 2005. The long-running government program, a key benefit for military personnel and other federal workers with qualifying service, has now been improved with higher loan limits and other benefits.

The Veterans Administration was established in 1930 and by 1989 had become the cabinet-level Department of Veterans Affairs . Its importance emerged in the 1940s as millions of returning World War II veterans used the VA program to buy homes with no money down, finance college educations and for other benefits.

Although decades have passed since the VA mortgage program first established, it remains one of the most important and valuable financing options. In fiscal 2004, for example, the VA says that it insured more than 375,000 home loans worth almost $50 billion and that nearly "four of every five veterans who used the housing program would not have qualified for a conventional loan."

The VA program is attractive for three core reasons:

• You can buy a home with no money down.

• The VA program has more liberal qualification standards than convention loans, so it means borrowers with given incomes can often get bigger mortgages under the VA program.

• You can buy single-family homes and properties with two-to-four units under the VA program. Qualifying individuals can effectively finance real estate investments with nothing down and low rates as long as they live in one of the units.

The VA does not actually make loans, instead it guarantees to re-pay lenders in the event of foreclosure. The size of the guarantee in recent years has effectively limited VA financing to $240,000.

Now, however, the VA loan guarantee has been increased to 25 percent of the Freddie Mac single-family conforming loan limit -- that's $89,912 for 2005. With this guarantee, lenders are willing to make VA loans for as much as $359,650 with no money down -- up almost $120,000 from the old rules.

(Because Freddie Mac loan limits are 50 percent higher for first mortgages in Alaska, Hawaii, Guam and the U.S. Virgin Islands, it also means that the VA loan guarantees in those areas are greater. Also, the VA loan program can be used to purchase properties valued at more than $359,650 by putting up cash at closing. Example: A $400,000 home could be purchased by combining a $359,650 VA loan with a cash downpayment of $40,350.)

The VA provides fixed-rate loans and has supported adjustable-rate mortgage (ARM) products in the past. However, the VA ARM was discontinued in 1995 but now it's back: The new rules allow VA-backed ARMs providing the interest rate adjusts no more than once a year, the interest level can move up or down no more than 1 percent with each annual adjustment and the interest rate cannot increase more than 5 percent over the life of the loan.

The VA ARM is the absolute gold standard for adjustable-rate financing. While many programs allow a 2-percent annual rate increase, the VA's 1-percent annual cap and 5 percent lifetime limit are substantial and important borrower protections.

In addition to ARMs, the VA will now guarantee "hybrid" mortgages until September 30, 2008, loans that start out with fixed rates and then convert after several years to ARM status.

With new hybrid loan products, the VA says that if the initial interest rate is fixed for less than five years, then the interest rate can only rise or fall as much as 1 percent annually once the loan changes to an ARM.

However, if the initial fixed rate period is more than five years, then the initial interest-rate adjustment can be as much as 2 percent and the lifetime interest rate can rise as much as 6 percent.

The new rules for hybrids do not apply to older loans. For example, says the VA, a hybrid ARM with an initial fixed rate for 5 years or more made prior to the new standards is limited to a 1 percentage point initial adjustment and a 5 percent limit over the life of the loan.

In addition to higher loan limits, the VA loan program now provides as much as $50,000 in Specially Adapted Housing (SAH) grant money to build or modify homes for individuals with service-related injuries. A grant, of course, does not require repayment or interest.

Lastly, VA loans require an upfront "funding fee." There are different funding fees depending on such factors as whether or not there is a downpayment, the size of the downpayment, whether the borrower in the active military or the National Guard, whether the borrower has used the VA loan program before, etc. However, the funding fee may be waived in certain situations and the exemption has now been expanded to include individuals "who are rated eligible to receive compensation as a result of a pre-discharge disability examination and rating."

The VA mortgage program has always been about more than rates and terms, it's a reward for honorable government service, a program with a long history of public benefit and a program now in tune with today's prices and values. For details, speak with local lenders and base housing officers or contact a VA regional loan center . Also, if you have already financed with a VA loan, see if the new and higher entitlement provisions allow you to again use the program. Online, the VA has a comprehensive discussion of the mortgage program at http://www.homeloans.va.gov/veteran.htm .

For more articles by Peter G. Miller, please press here .