Some higher-end home buyers with good credit will find conventional loan rates somewhat lower next year, thanks to a $22,300 increase in the so-called "conforming loan limit" that will take effect Jan. 1.

The new ceiling will be $275,000.

At current rates, the higher limit will save thousands of home buyers as much as $34,000 over the life of a 30-year mortgage, according to economists at Freddie Mac, a major supplier of mortgage funds. That's about $95 a month.

In addition, thousands of buyers will qualify for loans insured by the Federal Housing Administration. FHA mortgages aren't any cheaper than conventional loans, but they usually are easier to obtain by borrowers who can't qualify for conventional financing.

"This is good news for everybody," said Joe Anderson of Countrywide Home Loans. "It puts more people in homes."

Next year's ceiling represents an 8.83 percent increase over the current $252,700. It is largest dollar-increase ever, easily surpassing the $19,850 hike recorded in 1987.

The 2001 maximum will be even higher for two, three and four-unit properties.

The limit is the legal ceiling placed on home loans that can be purchased from local lenders by Fannie Mae and Freddie Mac, the two federally-chartered corporations which help bring liquidity to the mortgage market.

Because of their implied government connection, and the safety that link represents to investors who buy the securities Fannie and Freddie issue, rates on mortgages that will be sold to one company or the other are usually anywhere from 0.25 to 0.5 percent lower than those that exceed the limit.

Recently, though, the spread between loans that can be purchased by the two government-sponsored enterprises and "jumbo" or "non-conforming" mortgages that exceed the statutory limit has been in the 0.75 percent range.

On a $265,000 loan, according to Joseph Rogers of Wells Fargo Mortgage, the difference in the monthly principal and interest payment at 7.75% and 8.5% is $137 a month. That works out to a savings of $1,648 a year, or $8,220 over a five-year period.

Changes in the ceiling are based on the average price of houses nationally from one October to the next as calculated by the Federal Housing Finance Board.

This week, the board reported that in October, the average rose to $200,800, an 8.83 percent increase from $184,500 a year earlier. And Fannie and Freddie quickly followed by saying they would raise their limits by a corresponding percentage on Jan. 1.

Also on Jan. 1, the ceiling on loans back by the Federal Housing Administration is expected to increase to $239,250 in 38 high cost areas such as New York, Washington and San Francisco. The FHA maximum in expensive markets is set by law at 87 percent of the Freddie Mac limit.

In most other places, the FHA limit is set at 48 percent of the Freddie Mac ceiling. So it is likely to rise to $132,000. But it could be somewhat higher in about 650 communities.

Generally, FHA borrowers don't earn enough, have too much debt, haven't been on their jobs long enough or don't otherwise meet Fannie Mae and Freddie Mac's more stringent underwriting guidelines. Their only other alternative is the so-called "subprime" market, where rates are often four-six percentage point greater because of the greater risk these borrowers pose.

Neither Fannie, Freddie nor the FHA make loans directly to consumers. The GSEs act as middlemen, funneling funds from investors worldwide to local lenders. And the FHA insures loans made by private lenders, guaranteeing the timely payment of principal and interest should the borrower default.

Fannie and Freddie estimate that some 150,000 people will benefit from the higher conforming loan limit. But the vast majority of those people would probably have gone ahead whether or not their loans were any less expensive.

The higher FHA maximum, on the other hand, is likely to bring more buyers into the market because of the government's more liberal qualifying standards.

Other new conforming loan limits for 2001 are: $351,950 for two-family properties, $425,400 for three-unit dwellings, and $528,700 for four-unit buildings.

Published: November 29, 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.