CHICAGO -- Potential buyers of "fixer-uppers" who have moderate incomes will find it easier to get a mortgage under a program announced this week.

The mortgage, available after Jan. 1, will allow a potential buyer to get a mortgage with only a 5 percent down payment, as well as to borrow enough money to make needed repairs on the house.

"It's an important component of the affordable housing market that we wanted to reach," said Martin D. Levine, vice president for low- and moderate-income housing at the Federal National Mortgage Association (Fannie Mae). The program is a joint venture between Fannie Mae, which buys mortgages on the secondary market and packages them for sale to investors, and GE Capital Mortgage Insurance Cos.

Under the program, a home buyer can borrow up to 95 percent of the value of the home, plus the cost of the home renovation. Those repairs can cost up to 30 percent of the appraised value of the house after the renovation is finished. For example, if a house costs $70,000, but will have an appraised value of $100,000 after it is fixed up, a home buyer can put down $5,000 and borrow $95,000. That amount would cover a $65,000 mortgage and $30,000 to pay for the home renovation.

Normally, mortgages and the home-renovation loans are treated as separate obligations. They are relatively easy for higher-income home buyers to obtain, but more difficult for moderate-income home buyers who may have had to struggle to qualify just for the mortgage.

In areas with high housing prices, such as in the Washington metropolitan region, moderate-income home buyers sometimes find that the only houses they can afford are those that need extensive repairs.

One area lender, First Advantage Mortgage Corp. of Columbia, Md., said it expects to participate in the program. Other area lenders are expected to follow.

Richard Loessler, First Advantage's vice president of product development, said the program will be expensive to administer because the lender will need to keep a close eye on each home renovation. But he sees a promising market for the mortgages in the 14 jurisdictions it serves, including Montgomery, Frederick, Anne Arundel and Calvert counties. He said he hopes the program will contribute to revitalization of some neighborhoods.

"There are a lot of run-down areas that could really use the work," he said.

Buyers eligible to receive the new mortgages must have an income of no higher than 115 percent of the area's median household income. In the areas served by First Advantage, the annual income limit is $43,355. The new mortgage is part of a $750 million program aimed at helping more moderate-income families to buy homes, which was launched last year by Fannie Mae, GE Capital and the Federal Home Loan Mortgage Corp. (Freddie Mac), another secondary market firm.

GE Capital is insuring the mortgages and Fannie Mae and Freddie Mac are buying the loans from the lenders, thus reducing the risk to lenders, who tend to regard moderate-income borrowers as being more likely to default on loans.

To reduce its risk, GE Capital requires that home buyers attend classes to acquaint them with the realities of buying and owning a home.