Higher priced houses will be a little more affordable area next year, especially in high-cost markets like California and New York.

Effective Jan. 1, the so-called "conforming loan limit" will increase to $333,700. Also on that date, the ceiling on government-insured mortgages will rise to about $290,300 in three-dozen expensive areas and $160,200 in most other places.

But borrowers don't have to wait until the new year to take advantage of the increases. Some lenders said yesterday they are ready to accept applications at the higher limits for loans that will close in 2004.

"We'll put the new limits into effect by next week at the latest," said Gregory Sayegh, senior vice president at Washington Mutual, one of the country's largest lenders. "We do it early every year provided the loan funds after Jan. 1."

The conforming loan limit, currently $322,700, is the ceiling on loans that can be purchased by Fannie Mae and Freddie Mac, the two giant government-chartered financial institutions which maintain liquidity in the mortgage market.

They do that by buying mortgages from local lenders, packaging them into securities and selling them to investors worldwide.

The higher limit isn't likely to create any new home buyers. Most higher-end borrowers have the wherewithal to go ahead with their purchases whether their loans are any more expensive or not, mortgage market specialists agree.

But because the interest rate on conforming loans can be anywhere from 0.25 percent to 0.75 percent lower than that for "jumbo" loans that are above the Fannie-Freddie limit, monthly payments will be somewhat less expensive.

According to Fannie Mae's estimate, nearly 100,000 buyers could save up to $21,900 over the life of a 30-year mortgage because of the higher loan limit. But Freddie Mac says some 150,000 buyers will be able to obtain lower cost funding, saving almost $40,000 over a 30-year loan term.

Buyers can either pocket the difference or purchase somewhat more expensive houses.

Also benefitting will be those buyers who would have put up a few thousand dollars more of their own money into the deal to get their loan amounts under the maximum.

"No one takes out a loan $2,000-$3,000 over the limit," said Jay Brinkmann, an economist with the Mortgage Bankers Association. "Instead, they figure out a way to come up with the extra cash" so they can obtain a lower mortgage rate.

WAMU's Sayegh said his firm will even lower the rate for conforming loan borrowers who are "already in the pipeline" but won't close until after the first of the year.

The higher ceiling on loans insured by the Federal Housing Administration isn't likely to create many new buyers, either. But it will open the housing market a little wider for thousands with less slightly tarnished credit records.

"It's not a question of whether someone will qualify for an FHA mortgage or not," said Brinkmann. "Rather, it means that someone who does qualify will be able to buy a more expensive house."

The current FHA limit is $280,749 in high cost areas and $154,896 elsewhere. In about 650 communities, the maximum is somewhere in between the "floor" and ceiling.

FHA loans are considered the financing of last resort for borrowers who don't measure up to Fannie Mae and Freddie Mac's stricter underwriting standards.

Otherwise, they would be forced into the subprime market, where lenders charge rates that are often several percentage points higher.

Mortgages that are insured by the government are a little more costly than conventional loans backed by private insurers, who tend to charge less than Uncle Sam. But the typical FHA borrower doesn't earn enough or carries too much debt to qualify for a loan that conforms to Fannie Mae and Freddie Mac's requirements.

The 3.4 percent hike in the conforming loan limit announced yesterday is less than half the 7.33 percent increase put into effect on the first of this year, and only about a third of the 9.36 percent jump in 2002.

But it was greater than government housing price data suggested it might be just 30 days ago. In September, the year-over-year increase in average home prices was a negligible $300, or 0.01 percent.

Annual 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.

The average for this October was $243,756, the board said yesterday. A year earlier, it was $235,717.

The FHA limit is set by law as a percentage of the Freddie Mac ceiling. It is 87 percent of the maximum in about three dozen expensive markets and 48 percent most everywhere else.

Because the agency must calculate limits for 3,225 individual jurisdictions, an official announcement concerning higher ceilings is not likely until late December at the earliest.

Neither Fannie Mae, Freddie Mac nor the FHA make loans directly to consumers.

The government-sponsored enterprises guarantee the timely payment of principal and interest to investors, who, in turn, are willing to accept a somewhat lower yield. That difference is passed on to borrowers in the form of lower loan rates.

The FHA, an agency within the Department of Housing and Urban Development, insures loans made by private lenders to more risky borrowers.

Published: November 28, 2003

Use of this article without permission is a violation of federal copyright laws.

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.