December 8, 2010
There are many types of FHA home loans available to qualified borrowers. One of the best things about FHA programs is the acknowledgment that there’s no one-size-fits-all solution when it comes to FHA guaranteed loans; a variety of programs are designed to help borrowers.
One FHA mortgage loan is designed for limited-income borrowers who expect to see pay increases over time and want to buy a home in anticipation of those pay raises. The FHA Graduated Payment Mortgage targets first time home buyers with an important incentive–small early house payments that increase over time.
According to the FHA official site, the Graduated Mortgage Payment Program is especially helpful for “young families who expect their income to rise, but may not yet be able to handle all of the upfront and monthly costs involved in buying and owning a home. The Graduated Payment Mortgage (GPM) works in times of high interest rates when first-time homebuyers cannot meet the standard mortgage payment, but expect their incomes to increase substantially in the next 5 to 10 years.”
GPMs set the early mortgage payments at a discounted interest rate, adding the amount of that discount back into the loan’s principal balance. The FHA requires larger down payments for this program to prevent the loan from going higher than the legal loan-to-value ratio.
That higher down payment may seem daunting to some, but FHA loan applicants who start planning early should be able to save and budget accordingly for this type of FHA backed home loan.
There are a variety of plans an FHA mortgage applicant can choose from–some GPMs have interest rate increases over the first five years of the loan, others have more gradual interest rate increases over the first ten years of the loan. In the sixth year of the “five year GPM” the interest rate stabilizes. This stabilization applies to the 11th year for “10 year GPM” plans.
The FHA Graduated Mortgage Payment loan program is for those who plan to live on the property purchased with the loan as their primary residence. This program cannot be used for investment properties, summer homes or other purchases where the home is not the main residence of the buyer.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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