For would-be home buyers who have taken a pass on houses they really liked because they didn't want to deal with minor repairs, Uncle Sam has a deal for you. Ditto for sellers who don't want to mess with replacing the carpeting or worn out appliances before putting their places on the market.

Under a new loan program from the Federal Housing Administration, buyers of homes which need a new roof, a paint job or perhaps a new furnace can roll the cost of those repairs into an FHA-insured mortgage without the need for a second loan -- or the need to dip into the old bank account to make the fixes.

The "limited repair" loan is a streamlined version of the agency's 203(k) renovation loan program that allows borrowers to include the cost of major repairs into their loan amounts, which are then based on the "as completed" value of the property.

"That's the best benefit," says Sherry Eckles, national training manager for M&T Mortgage Corp. "Instead of charging the cost of repairs on your Home Depot card and paying 21 percent interest for the rest of your life, you can borrow up to 110 percent of the appraised value."

The program is intended to facilitate the sale of "as is" properties which need just a little work, and is ideal for borrowers who don't have any cash left after closing to replace worn out carpeting or leaky windows.

"The Steamline (K) option does not replace the standard 203(k) program, but delivers an alternative for those home owners who seek to make the type of uncomplicated repairs which may be accomplished successfully without paid consultants, engineers or plan reviewers," the FHA says.

The program, which was developed in response to lenders' requests for a purchase-rehab loan alternative that is easier to administer and faster at processing estimates and approvals, is intended to assist buyers with basic repairs.

Borrowers can add from $5,000 to $15,000 to their loan amount to make repairs after closing. Repairs do not require documentation other than written estimates from appropriate licensed contractors. Ineligible work items include such major projects as relocating a load-bearing wall, making additions to the property, fixing structural damage, landscaping, and work that takes longer than six months to complete or requires more than two payments per specialized contractor. For these more complicated repairs, the standard FHA 203(k) program applies.

The FHA, which doesn't make loans directly to consumers, but rather indemnifies lenders in the event a borrower does not make his payments, will allow lenders to charge no more than $375 as a supplemental origination fee for the loan. That's in addition to the 1 percent fee they can charge for making the purchase mortgage.

No more than two payments can be made to the contractor. The first payment is intended to defray the cost of materials and can be no more than half of the estimated cost. But watch out here: It is dangerous to give contractors that much up-front, and it is against the law in some places. At most, hand over no more than a third of the cost prior to the start of work.

The final payment can't be made until the work is done, all liens are released, and the lender signs off that the repairs have been completed in a "workmanlike and satisfactory manner."

Published: June 15, 2005

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.