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.