WASHINGTON (AP) - People looking to buy more expensive homes next year will have fewer options to find financing because Fannie Mae and Freddie Mac will have lower limits on the size of loans they can buy.

The changes, effective Jan. 1, will lower the limit in high-priced real estate markets to $625,500 down from $729,950. Consumers who need to take out home loans above that amount typically pay higher interest rates, and that can price some would-be buyers out of the market.

For example, traditional 30-year fixed rate loans at or below Fannie and Freddie's traditional limit of $417,000 were averaging around 6.3 percent this week, compared with 7.6 percent for "jumbo" loans that can't be sold to the two companies, according to HSH Associates.

Loan limits vary by metro area and are based on the local median house price. So falling home values in some markets have pulled the loan limits down with them.

In the Boston area, for example, the limit will fall to $465,750 from $523,750. In the Baltimore area, it is schedule to drop to $494,500 from $560,000.

The Federal Housing Finance Agency, which regulates Fannie and Freddie, kept the limit for lower-cost metro areas at $417,000.

Lawmakers temporarily raised the loan limits for Fannie and Freddie in an economic stimulus bill passed in February and revised them in a housing bill passed over the summer.

There are fears that the reduced limits will hurt the housing market next year. Fannie and Freddie have become the dominant source of mortgage funding since last year's collapse of the subprime lending market.

The National Association of Realtors is pressing lawmakers to keep the limit at $729,950 to help the U.S. housing market recover from its worst slump in decades.

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On the Net:

http://www.ofheo.gov/media/cll/HighCostLoanLimits2009.pdf