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Milwaukee's community renewal program: urban renewal techniques
(May 1964)

Appendix A : financing home improvements,   pp. 43-48


Page 45

a minimum of red tape. The disadvantage is that the owner must make monthly payments in addition to his month-
ly mortgage payments. This may stretch the family budget to the breaking point. However, it may be the best
loan for an owner who has a low interest rate (4-1/2 or 5 per cent) on his present mortgage. If he refinances
his present mortgage to take care of remodeling costs, he may have to pay 6-1/2 per cent not only on the money
for improvements, but also on the unpaid balance of the old mortgage. One should investigate carefully since
refinancing could cost hundreds of dollars in interest charges, re-examination of title costs, etc.
FHA Section 220. This insured loan is available only to owners of property within an approved urban
renewal project. It is desirable when extensive improvements upgrading the overall condition of the house are
required. Under FHA mortgage insurance a property owner may refinance his existing mortgage together with
the cost of the repairs and obtain a 90 to 97 per cent mortgage, depending upon the value of the property.
The interest rate on this loan is very good - 5-1/4 per cent plus 1/2 per cent FHA insurance premium
or a total of 5-3/4 per cent. Mortgage payments can also be amortized over a 30 year period if necessary to
keep the owner's monthly payments within his budget. FHA will not approve a loan for installation of a modern
kitchen or bathroom alone unless other deficiencies, such as a leaking roof, lack of paint, defective gutters
and downspouts, etc. are also corrected at the same time.
The closing costs, including discount charges, are higher with this type of loan than under some con-
ventional loans. This type of loan is valuable to a home owner who already is stretching his budget with a high
interest loan. He can borrow a substantial amount of money for improvements and make small monthly payments
over a long period of time. It is also valuable to a home owner who purchased his home under a land contract
since financing under Section 220 will give him clear title to the property.
FHA Section 221. This section of the National Houising Act is being used to assist families displaced by
urban renewal or other public action to purchase homes with 100 per cent financing. It has been liberalized to
include urban home owners who improve their property. Any city home owner having code violations against his
property is also eligible.
Property owners desiring to use this type of financing for home improvements must first obtain a Certifi-
cate of Eligibility from the Department of City Development. Section 221 will enable the owner-occupant to
obtain 100 per cent financing up to $14,500 to cover the cost of the existing mortgage plus the cost of the re-
pairs or improvements. A two-family house can be financed up to $25,000, three-family up to $32,000, and
four-family up to $38,000.
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