The Department of Housing and Urban Development has made it official: The Federal Housing Administration (FHA) is now insuring single-family mortgages of up to $261,609 in high-cost areas and up to $144,336 in places where costs are not out of sight.

Also as of Jan. 1, the ceiling on loans which can be purchase by Fannie Mae and Freddie Mac increased to $300,700. And a few days before the year's end, President Bush inked legislation that immediately increased to $240,000 the amount that can be borrowed with no money down by veterans and other servicemen and women who are eligible for mortgages guaranteed by the Veterans Administration.

Although HUD knew it would raise the FHA ceiling more than 30 days ago, the official announcement wasn't made until Jan. 2 because the agency must calculate the limit for some 3,225 separate jurisdictions. FHA is now in the process of sending letters to thousands of mortgage lenders and brokers to make sure they are aware of the new limits.

"For the last year, housing has remained one of the stalwarts of our economy," said HUD Secretary Mel Martinez. "These new loan limits will further contribute to an even stronger housing market in 2002 and expand home ownership opportunities for many more families."

With the new limits, HUD expects to back some $120 billion in single-family mortgages for 1.2 million homes in 2002, an increase of $14 billion and 200,000 homes over 2001 levels.

The increase in loan limits will enable more working families to become homeowners and will help the FHA mortgage insurance program keep pace with the robust housing market, HUD said in its announcement.

FHA financing is a staple among first-time and low-income buyers because the agency requires only a 3 percent downpayment and permits family and friends to contribute to the initial home buying expenses. In addition, FHA has more relaxed credit standards and permits borrowers to carry more debt than allowed on loans backed by private mortgage insurers.

The new loan limits are part of an annual adjustment HUD makes to account for rising home prices. Under federal law, FHA limits are tied to limits on loans that conform to the requirements of Freddie Mac and Fannie Mae, two federally chartered corporations which keep mortgage money flowing by purchasing loans from local lenders and packaging them into securities for sale to investors throughout the world.

Based on a 9.36 percent increase in housing prices, Freddie and Fannie raised their limits from $275,000 to $300,700 beginning Jan. 1. And the FHA followed suit, raising its limits by a corresponding percentage.

In 38 high cost markets, the FHA limit increased from $239,250 to $261,609. In most other places, it went from by a similar 9.36 percent and the limit in most other places from $132,000 to $144,366 in most other places. The limit is somewhere in between in about 650 communities where housing costs are deemed high but not outrageous.

As little as three years ago, the loan limits ranged from just $115,200 to $208,800, levels below the cost of many homes in many communities. As a result, says HUD, families who needed FHA mortgage insurance to qualify for buy a home were effectively locked out of the process.

The higher FHA loan limits will not cost the government any money, because the FHA Insurance Fund is fully supported by premiums paid by borrowers who receive FHA insurance.

The higher FHA ceiling also will benefit senior citizens who qualify for FHA-insured reverse mortgages. Reverse mortgages allow homeowners age 62 and older to borrow against the value of their homes without selling them. Homeowners can select a lump-sum payment, monthly payments or tap into a line of credit.

No repayment is required as long as a homeowner lives in a home with a reverse mortgage. The reverse mortgage is repaid, with interest, when a homeowner sells the home or dies.

The limits for two, three and four-unit properties also are higher for 2002. They range from $184,752 to $334,863 for two-unit buildings, $223,296 to $404,724 for three-unit structures, and $277,512 to $502,990 for four-unit properties.

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