The Department of Veterans Affairs is raising the ceiling for no-down-payment home loans it will guarantee to match local limits used by Freddie Mac — currently as much as $729,000 in high-cost areas.

The increased limits, effective immediately, are in accordance with temporary increases Congress and the Bush administration approved for Fannie Mae, Freddie Mac and FHA loan guarantee programs. The temporary limits expire Jan. 1, and are equal to 125 percent of the local area median home price up to $729,750.

On Jan. 1, loan limits for Fannie, Freddie, FHA and VA will be scaled back to 115 percent of median home price, with a cap of $625,500. The lower limits, part of a sweeping housing bill signed into law in July, still exceed the previous $417,000 conforming loan limit for Fannie and Freddie and a $362,000 cap for FHA in high-cost areas.

HR 3221, the Housing and Economic Recovery Act of 2008, also raised minimum down payments on FHA-backed loans to 3.5 percent, and beginning Oct. 1 will prohibit borrowers from using seller-funded down-payment assistance to meet the requirement. Nonprofits largely funded by home builders that provide seller-funded down-payment assistance are backing legislation that would allow FHA borrowers to continue using the programs.

In the meantime, with private mortgage insurers utilized by Fannie and Freddie requiring minimum down payments of 5 percent in many markets, the VA is currently one of the few available sources of zero-down loans.

***

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