December 21, 2010
For every new home owner, there is a different set of needs. FHA mortgages are designed to serve a range of preferences. Some people apply for an FHA home loan looking simply for low monthly payments. Others purchase homes looking for lower interest rates so they can save money over the lifetime of the FHA loan. Still others want to purchase homes with shorter commitment times.
For those who want shorter mortgage terms, the FHA Growing Equity Mortgage or GEM is an option worth looking into. GEMs are basically Graduated Payment Mortgages; they let the borrower pay off the principal faster while shortening the mortgage term by increasing the payments over time.
Those increased payments are applied to the principal loan amount rather than the interest on the loan, which helps pay off the loan faster. With Graduated Payment Mortgages, there is no deferred interest rate or negative amortization.
According to the FHA official site, “The same underwriting guidelines that apply to Section 203b mortgages also apply to GEMS.”
This means that a borrower can apply for a Growing Equity Mortgage the same way they would for a typical FHA home loan. The credit requirements are the same, borrowers may be able to qualify for down payments as low as 3.5%, and the mortgage origination fee for an FHA Growing Equity Mortgage may not exceed one percent of the loan amount. As with other FHA loans, the mortgage limits on GEMs will vary by geographic location.
You can search the FHA database of mortgage limits or check with your loan officer to learn more.
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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