Access to mortgages continues to get better. That's true both for first-time buyers seeking modest homes and for buyers of bigger houses with larger loans.
Two changes took effect in December.
First, it will be cheaper to get a government-insured loan backed by the Federal Housing Administration (FHA).
Second, many of you will be able to get a larger mortgage at normal interest rates, rather than pay the higher rates that are usually charged for "jumbo'' loans.
When you take an FHA loan, you pay a premium upfront to cover the cost of insurance. The insurance repays the private lender if you default. It's thanks to this coverage that FHA loans carry such low down payments (as little as 3 percent).
FHA has been charging most borrowers a premium of 2.25 percent. That cost is being cut. For loans closed in 2001, all borrowers will pay just 1.5 percent upfront.
You don't need cash. Typically, people borrow the cost of the premium and add it to their mortgage loan.
You'll get a partial refund of your mortgage premium if you pay off or refinance the loan within the first five years. (For loans closed in 2000 and earlier years, you get a partial refund if you repay within seven years.)
FHA lenders also will be able to make larger loans. The maximum you can borrow varies from county to county. To see how much you can borrow, click on www.hud.gov/mortprog.html.
The new maximum ranges from $132,000 in low-cost markets to $239,250 in high-cost markets ($358,875 in Alaska and Hawaii). That's 8.8 percent more than you could borrow last year.
Now, on to the new possibilities for people buying or refinancing expensive homes.
Mortgages come in two sizes, "conventional'' and "jumbo.''
Most loans are conventional meaning that they don't exceed a certain amount. Almost every year, that amount goes up, reflecting the average home-sale price for the previous year.
Fannie Mae and Freddie Mac buy conventional loans from banks and resell them to investors. That way banks get their money back, and can lend again.
Jumbos are larger mortgage loans. Fannie and Freddie don't buy them, which raises the lender's risk. So they carry a slightly higher interest rate.
Currently, the average 30-year jumbo costs 7.9 percent interest, compared with 7.5 percent for conventional loans.
In 2001, the size loan considered "conventional'' is taking a big jump the largest since 1989, says Joe Rogers, executive vice president of Wells Fargo Home Mortgage in Des Moines, Iowa. Many borrowers who used to need jumbos now qualify for the cheaper conventional loans.
Loans closing this year can be as large as $275,000 on a single-family home and still get conventional rates. That ceiling, too, is 9 percent higher than it was in 2000. (The ceilings are 50 percent higher in Alaska and Hawaii.)
Loan limits are increasing for second mortgages, too: up to $137,500 for the lower 48 states and $206,250 for Alaska and Hawaii.
If you currently have a jumbo and your loan falls within these new limits, call your lender about refinancing. Doug Perry, first vice president at the mortgage lender Countrywide, says that someone with a $275,000 loan could save about $200 a month on payments.
For those seeking much lower payments, some 25 lenders are promoting a new "shared appreciation mortgage,'' or SAM. You get a lower interest rate in return for giving the lender a piece of your profits when you repay the loan.
How much profit you give up depends on how low you want the interest rate to be. A 5.75 percent mortgage might cost you 60 percent of your appreciation.
Participating lenders are touting SAMs to people who don't expect their homes to rise much in value, want to lower their payments to get more cash to spend or invest, or want more expensive houses than they could otherwise afford. To find a lender, call (888) 228-7660.
But ask yourself: Would lenders offer this deal if they thought they were going to lose? On average, borrowers will pay the equivalent of the conventional interest rate, or more.
There are prepayment penalties and tax complexities. Your own home improvements will raise the property's value, which you may have to share with the bank.
Read all about these and other risks at www.hsh.com. SAMs were tried in the early 1980s, and failed. I doubt they'll stir much more interest now.