They've been around for more than 50 years and have helped everyone from World War II veterans to Vietnam vets and local reservists. In the last 17 years, almost 5 million veterans became homeowners through government loans worth $396 billion.

The Department of Veterans Affairs backs the mortgages. And, even as more and more time separates Americans from the great wars of the early 20^th century, the VA loans continue to shape the lending landscape by allowing people to forego down payments when they settle down after their tours of duty.

Tried and true
"It's a good program. It's a viable program, and it definitely helps out veterans," says Robert Brown, an executive vice president in Cleveland with Countrywide Credit Industries Inc. "I think that's the key."

VA loans made their debut back in the days of the first suburbs and the birth of the baby boom. A byproduct of the Servicemen's Readjustment Act of 1944 -- known as the G.I. Bill -- the program emerged as a way to help returning servicemen find their footing by making home buying easier.

"It was recognized that these veterans were coming out of World War II with, in some cases, very little cash and, in some cases, no credit history that lenders could use to underwrite their loans," says Judy Caden, deputy director of the VA's loan service.

A solid guarantee
The government doesn't extend loans directly, she adds. Instead, it promises to reimburse a lender for a portion of its loss if a veteran defaults. In exchange, the lender agrees to lend the full value of the home, or slightly more.

"The main advantage of the VA loan is 100 percent financing. That's traditionally the biggest difference between a conventional loan vs. a VA," says Larry Schiavi, senior vice president of production for Marine Midland Bank in Buffalo.

As little as 90 days service qualifies veterans of World War II or the conflicts in Korea and Vietnam for a loan. For those who enlisted during times of peace, as well as some reservists, the required tour ranges from two to six years. Widows and widowers of qualifying veterans may also be eligible. Veterans can find forms to document their service records online or at their local VA office.

How it works
The caps have increased over the years as the law changed. Currently, the VA will back up to either $36,000 or $50,750 of a loan, depending on the price of the home. Someone who used $10,000 of the benefit years ago can use the remaining $26,000 for a purchase today, Caden says. By selling a VA-purchased home and paying off the loan, a veteran also can replenish the entitlement for use again.

Securing a VA loan isn't all that different from getting a conventional mortgage, despite the requirement that veterans submit an eligibility form, lenders say.

"The processing is very similar," Schiavi says. "There's still an income verification, verification of funds to close, appraisal and credit report that are required."

Easier qualifying
Borrowers may find certain underwriting standards more relaxed, however. Traditional loan guidelines require that housing debt not exceed 28 percent of a borrower's gross income while overall debt, including things like credit cards and auto loans, not eclipse 36 percent. With VA loans, he says, the total debt ratio can be as high as 41 percent.

Usually, a FICO credit score of less than 620 on a scale of 300 to 800 will disqualify a would-be borrower. But lenders generally treat VA loan customers more gently.

"There is more leniency on the FICO scores," says Frazza, a regional vice president with Fleet Financial Group Inc.'s mortgage arm.

"You can get below the 620 and get the deal done. You're going to need reasons for the defaults and they're going to look into explanations and try to understand those, but there is more latitude there."

An extra fee
Yet veterans must pay an extra "funding fee" that covers part of the entitlement program's cost. Today, it ranges from 1.25 percent to 2.75 percent of the loan's value. It can be rolled into the loan, so someone looking for a $100,000 house might obtain a mortgage for $102,000 to cover a 2 percent fee.

Veterans are not fully immune from having to come up with a down payment. Most lenders require a combination of entitlement and down payment equal to 75 percent of the property's value. So, a veteran with $20,000 worth of available guarantee would have to come up with $5,000 to close on a $100,000 property.

Veterans pay about the same interest rates as conventional borrowers. The difference is rarely more than 0.25 percent.

In mid-November, Countrywide was offering an identical 30-year fixed rate of 7 percent on $100,000 homes to conventional borrowers putting 20 percent down and VA borrowers putting nothing down, according to Brown.

How to choose
So when does it pay to accept a VA loan?

People who view their homes as part of a larger financial plan should probably opt for VA loans because they free up down payment money that can be invested elsewhere at a higher rate of return, says Dave Braakman, Chicago area sales manager for PNC Bank Corp.

And if rates look like they're poised to rise again, Braakman adds, a borrower might be safer with a VA mortgage because anyone who later buys the home can take over the loan.

"If you have a VA 30-year fixed at 7 percent, and you want to be able to market your home and sell it quickly, you're going to offer somebody an awfully attractive situation" if a new purchase loan would have a much higher rate, says Braakman. "It's something we haven't needed to be thinking about in the '90s ... but it was a very popular feature when the rates were 14 (percent) or 15 percent."

VA mortgages offer an advantage when rates drop, too. Lenders require most conventional borrowers to have 10 percent equity in the home before refinancing. VA loans can be refinanced any time.

When things go wrong
The VA program does not restrict the number of loans a borrower can secure with the property, as long as the VA mortgage remains the first lien. That means the agency would have first dibs on the home if a foreclosure or default occurred.

If a borrower becomes delinquent on VA mortgage payments, the government will sometimes work out a solution that is more favorable than any arrangement a conventional lender might make, the VA's Caden says.

"We will make personal contact with the veteran and we will look into how can we help arrange a repayment plan, how can we get them back up to current status," she says. "If it looks like the loan is going to go into foreclosure, we will look at some of the alternatives: Could they sell the home to avoid foreclosure? Can a compromise be done?"

In extreme cases, the VA will even pay off the lender and assume the loan itself, she adds. That happened with less than one-half of one percent of the loans issued in fiscal 1998, according to government data.

As traditional lenders relax their standards and the number of eligible veterans wanes, it might seem the VA program would become a thing of the past. Experts predict, however, that demand for the loans will continue, even if it were to decline somewhat.

Demand remains
There were 236,800 VA loans originated in 1980, according to the Mortgage Bankers Association of America. While that number rose as high as 523,000 and fell as low as 140,900 in the years since, in 1997 it was back near where it started: 237,700.

"I haven't seen any significant fall off in the demand for VA loans because it is a zero-down payment program," says Countrywide's Brown. "There are more programs that are for higher loan-to-value ratios than there were in the past, but VA still has its market edge."

While the overall demand for VA loans remains, some lenders say veterans now represent a smaller percentage of their customers.

"The demand has been slowly dwindling off over the years," says Steve Olson, senior vice president for servicing at Principal Financial Group's Des Moines, Iowa, office. "There are fewer and fewer veterans than there were after Vietnam or World War II, and with things like the Gulf War, we really didn't see much of an impact."

He notes that Principal has its roots in the life insurance business, and as such, was once restricted to offering just VA and Federal Housing Administration, or FHA, loans. About 40 percent of the company's loans were VA and about 60 percent were FHA in the 1970s. But today, only 15 percent of the 478,000 loans Principal services are of the Veteran variety. The decline, in part, is due to competition from other low-down programs, he says.