FHA Growing Equity Mortgages
Loans for Borrowers with Rising Incomes
FHA Growing Equity Mortgages are home loans that are tailored for first-time homebuyers or young families. These likely homebuyers are often not in a position that would warrant them being able meet the many upfront and monthly costs that are involved.
FHA's Section 245(a) enables those who currently have a limited income but expect their monthly earnings to increase, to purchase a home with the help of a Growing Equity Mortgage in which payments start small and increase gradually over time. As the mortgage payments grow the additional payment is applied toward the principal on the loan thus reducing the mortgage term. Growing Equity Mortgages also allow homeowners who are interested in further reducing the term of their mortgage to apply scheduled increases in their monthly payments to the outstanding principal balance.
How it Works
Through this and other types of mortgage insurance programs, the lender helps low and moderate-income families purchase homes by keeping the initial costs down. By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines. It also protects lenders against loan default on mortgages for properties that include manufactured homes, single-family and multifamily properties, and some health-related facilities.
Through the Growing Equity Mortgage program first-time homebuyers and others with limited incomes can start out with a low monthly mortgage payment that will increase gradually over time therefore allowing them to purchase a home sooner than they would be able to through conventional financing programs.
Available Assistance
Growing Equity Mortgages are eligible for insurance under Section 203(b) for one to four family homes; Section 203(k) for home purchase, refinancing, or rehabilitation; Section 203(n) for shares in cooperative housing; and Section 234(c) for units in condominiums. Growing Equity Mortgages must meet the requirements of the section under which they are insured but certain exceptions are available.
Each of the five Growing Equity Mortgage plans provides for monthly payments to be increased by a fixed percentage during each year of the loan. The initial year's payments to principal and interest are based on a 30 year level payment schedule. Thereafter the amount of the monthly payments for the next 12 months will increase each year by between 1 and 5 percent depending on the plan selected. The actual term of the mortgage will not exceed 22 years and may be less depending on the specific Growing Equity Mortgage plan and interest rate selected.
Eligibility
Most lenders who use this mortgage insurance product make their requests through a provision known as "direct endorsement," which authorizes them to consider applications without submitting paperwork to HUD.
Application
Growing Equity Mortgages are available to anyone who anticipates their earnings to increase appreciably and intends to use the mortgaged property as their primary residence.
FHA Loan Programs
SEE YOUR CREDIT SCORES From All 3 Bureaus
Do you know what's on your credit report?
Learn what your score means.
FHA Loan Articles and Mortgage News
June 9, 2023 - If you are interested in building or buying a home, there is an FHA loan that can help. But if you have never done so, you may worry about your ability to be approved for the mortgage. What can help a borrower’s chances when it’s time for the lender to decide whether to approve or deny their loan?
June 6, 2023 - What steps are the Biden administration and the banks taking? According to a DoD fact sheet, Federal banking agencies are in the process of issuing proposed guidance on how financial institutions may integrate fair appraisal controls into their current processes for a start.
June 3, 2023 - If you’re thinking about buying a home this year and you need to save more money upfront on your down payment, an FHA mortgage is an option to consider thanks to its minimum 3.5% down payment. There are other perks to FHA loans, as we’ll discover in this article.
June 1, 2023 - If you use an FHA One-Time Close construction loan to build a house from the ground up and don’t have a plot of land, you’ll need to purchase the land in conjunction with the construction loan. It’s an expense that may push up the cost of the loan, but a necessary one.
May 30, 2023 - Knowing the down payment rules before you start saving for your home loan may make the entire process more efficient, especially if you know you’re required to give the lender the sources of your down payment money and document it accordingly.
