The FHA Section 245 loan program is available to first-time or repeat homebuyers.  Applicants must meet all FHA eligibility requirements.  With the umbrella of the FHA insured Section 245 mortgage, lenders can grant loans to individuals or families who may not otherwise qualify for conventional loans or other FHA insured loans.

Also, with a FHA insured loan, down payments can be as low as 3 percent, allowing borrowers to finance the remaining 97 percent of the cost of the home through their mortgage.  FHA approved down payment grants are available as well.  Additionally, some or all of the closing costs may be financed into the mortgage, further reducing the up-front costs.

The graduated loan program is open to any family or individual who expects their annual income to rise substantially over the next five to ten years.  However, borrowers must occupy the purchased home as their primary residence.  The Section 245 program is not available to investors.  Applications for the Section 245 graduated loan program must be made through FHA approved lending institutions.

The types of properties that are included under the Section 245 graduated mortgage plan include single-family homes, multi-family homes, manufactured homes, and some health related facilities. 

Many individuals and families do not qualify for typical conventional fixed-rate mortgages, especially young and low to moderate-income families.  In order to reduce the risk to a lender, FHA has developed creative methods that allow a lender to confidently approve home loans to those lesser-qualified individuals.  The Section 245 graduated loan program is one of those methods that can allow a family with continually increasing incomes to live in their own home sooner than they thought possible.

Do you know that your income will increase in the future?  If you are like many people with steady career growth and income increases you may qualify for the FHA Section 245 loan program.  This program allows an individual or family to purchase a home based future rising incomes while paying smaller mortgage payments in the beginning of the mortgage term.  Depending on the payment plan selected, qualifiers for this loan program must understand that while their monthly mortgage payments start small, payments will increase substantially each year for up to 10 years.

What is the Graduated Mortgage Plan?

FHA approved mortgage lenders can grant loans to individuals and families with low to moderate incomes that may not otherwise qualify for a conventional loan.  The Graduated Mortgage program helps keep initial costs low and allows homebuyers a chance to purchase a home sooner than they would be able to under conventional loan programs.  Borrowers are offered five different graduated payment plans, which they can tailor to suit their future income expectations.  These plans may also lower some of the initial upfront and monthly costs of purchasing a home.

Three of the plans allow for substantially lower initial mortgage payments with increases of 2.5 percent, 5 percent, or 7.5 percent over the first five years.  The other two plans allow for 2 to 3 percent increases over 10 years.  Once all the increases have been placed for the five or the ten-year programs, the mortgage payment will remain the same for the remainder of the loan.  Graduated payment homebuyers need to consider that the overall lifetime interest paid will be greater than that of a stable payment loan.

It is important to understand that the interest rate does not increase during the life of the mortgage, just the amount of monthly payments.  Additionally, building equity in a home takes longer with lower initial payments.

A housing rescue bill aimed at helping distressed homeowners recently passed a test vote in the Senate. 60 votes were needed to close the debate on the bill and it received 83. However, problems still loom with the president threatening a veto over certain sticking points. In particular, the White House is opposed to giving $4 billion dollars to states to purchase properties that have been foreclosed upon. President Bush sees this as a way to help out the banks that financed these risky loans and not the borrowers who have been hurt by predatory lending practices.

The bill would affect the FHA by allowing it to back $300 million worth of loans for approximately 400,000 who would not normally meet the FHA standards. Opponents of this part of the plan argue that this lowering of the FHA’s already relatively lenient standards will only lead to more foreclosures in the future and could potentially result in the demise of the FHA. Proponents argue that, at the current time, this is the best solution for the hundreds of thousands of homeowners in trouble.

Because of the Congress’s Fourth of July recess (July 1^st – 10^th) progress on the bill is unlikely until mid- to late-July.