Government-insured mortgages are now within the reach of even more potential home buyers, thanks to an increase in maximum loan limits that took effect Jan. 1.

As of the first of the year, the Federal Housing Administration said it would begin backing loans of up to $219,849 in high-cost areas, and up to $121,296 elsewhere.

The new limits represent a 5.3 percent increase from last year's basic mortgage limit, or "floor," of $115,200 in places where housing prices are relatively low and the "ceiling" of $208,800 in expensive markets.

The Department of Housing and Urban Development said the increases "will help thousands" more families become home owners. And National Association of Realtors President Dennis Cronk said the higher limits "help expand home ownership opportunities nationwide."

According to the Mortgage Bankers Association, 60,000 buyers benefitted from last year's 5.8 percent increase in the FHA maximum loan amounts. But MBA economist Brian Carey doesn't think that many will get a lift from the latest hike.

Moreover, he pointed out that markets where housing prices are sluggish will benefit more than those where costs are rising strongly. "A 5 percent increase doesn't mean as much if prices are going up 10 percent," he said.

Of the 17 places where the limit is now at the maximum, a dozen are in California and two are in the New York area.

FHA's loan limits are set by law and are based on the ceiling placed on single-family home loans that can be purchased by Freddie Mac, a government-sponsored enterprise that helps bring liquidity to housing finance. The FHA's lower limit may not be less than 48 percent of the Freddie Mac ceiling, and the upper limit may be no more than 87 percent of that maximum or 95 percent of the area's median house price, whichever is less.

In late November, Freddie Mac and its sister company, Fannie Mae, said they would raise their limits 5.3 percent to $252,700 as of Jan. 1. And last week, the FHA said it would follow suit.

But unlike the change in the so-called "conforming loan" limit, which means only that mortgage rates will be a bit lower for people who probably would have purchased houses anyway, the higher FHA ceiling will actually create more buyers because more people will be able to obtain financing.

Government-insured mortgages are often considered the financing of last resort for buyers who can't qualify under the more rigid requirements for loans that conform to Freddie Mac and Fannie Mae's standards. The FHA insured a record 1.3 million mortgages last year, to the tune of $124 billion.

Without the government's help, borrowers with less-than-sterling credit are either forced out of the market or into paying much higher loan rates than those charged by FHA-approved lenders.

The FHA does not make loans directly. Rather, it insures mortgages made by private lenders. The insurance guarantees the timely payment of principal and interest in the event the buyer defaults on the loan.

But because the insurance is paid for by premiums paid by buyers, the higher loan limits will not cost the government any money. Indeed, the FHA's standard Section 203 insurance fund actually produces a profit every year.

About four out of every five FHA borrowers are first-time buyers. Also, about 40 percent of all home loans made to African Americans and Hispanics are backed by FHA insurance.

The higher loan limits also apply to rehabilitation financing, which allow borrowers to finance the cost of buying a home and repairing it into a single mortgage, and reverse mortgages, which permit seniors age 62 or older to convert their equity into cash without having to sell their homes or move out.

Published: January 5, 2000

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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.