A nationwide public and private fund will provide $2.75 million in grants and loans to start affordable housing projects in Baltimore.

The fund comes from the second phase of the National Community Development Initiative, a partnership of companies, foundations and the U.S. Department of Housing and Urban Development, that has projects in dozens of cities around the country.

In Baltimore the money will be used to help rehabilitate 600 housing units in the Sandtown-Winchester neighborhood as well as several hundred units elsewhere.

"This is the most important kind of investment HUD can make, because it truly strengthens the fabric of community life," HUD Secretary Henry G. Cisneros said yesterday. "It enables people to become responsible for their communities' destiny and gives them a personal stake in the outcome."

The money will be targeted toward grass-roots community groups, often in minority communities, that have trouble attracting working capital, according to F. Barton Harvey III, the chairman of Columbia-based Enterprise Foundation, which will oversee the effort locally.

"It's seed money to get the process started," he said. "The grants and loans will help with pre-acquisition costs and help to get these organizations to the point where they can take advantage of city, private and federal financing."

In the program's first round in 1991, local organizations were able to use $1.5 million to attract about $10 million in financing from other sources. That money was spent on start-up and real estate costs in rehabilitating 128 homes in the Sandtown-Winchester neighborhood and for a program to train leaders of grass-roots groups in community development techniques.

Nationwide the program will cost $87.65 million, with almost a quarter of that coming from HUD. The rest has been pledged by companies and foundations including J.P. Morgan, Prudential, Metropolitan Life and the Rockefeller and MacArthur foundations.

In a reference to First Fidelity Bancorp.'s purchase of Baltimore Bancorp yesterday, Mr. Harvey said he hoped the funds could be used locally to attract money, particularly from banks hoping to increase the amount of inner city and minority housing loans they have on their books.

Several recent bank acquisitions have been sidetracked by federal concerns about minority and inner-city loans.

"For those banks that are looking to expand their franchise," Mr. Harvey said, "it makes good business sense for them to find ways to invest these communities."