Graduated Payment Mortgages are FHA loans for homebuyers who currently have low to moderate incomes but expect them to increase substantially over the next five to 10 years.

FHA.com: Home Purchase and Refinance Loans

FHA Loan Programs for 2024

The most recognized 3.5% down payment mortgage in the country. Affordable payments w/good credit.

Are You Watching Your Credit Score?




- Improving Your Credit Score Has Never Been More Important -

FHA.com is a privately owned website, is not a government agency, and does not make loans.
FHA Home Loans

Choose a Loan Type

FHA.com is a privately owned website, is not a government agency, and does not make loans.

FHA Graduated Payment Mortgages

Keeping Initial Loan Costs Down

Graduated Payment FHA Loans

Graduated Payment Mortgages are FHA loans for homebuyers who currently have low to moderate incomes but expect them to increase substantially over the next 5 to 10 years. Through this FHA loan program, also referred to as Section 245, those who have limited incomes are able to purchase a home and make mortgage payments that will grow along with their earning potential.

Those who are considering using a Graduated Payment Mortgage to purchase a home should keep in mind that while their monthly payments to principal and interest will start small, they will increase substantially each year for up to ten years, depending upon the payment plan selected.

How it Works

Through this and other types of FHA loan 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 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 Graduated Payment Mortgage program first-time homebuyers and others with limited incomes can tailor their monthly mortgage payments to fit their expanding incomes therefore allowing them to purchase a home sooner than they would be able to through conventional financing programs.

Available Assistance

Of the five FHA Graduated Payment Mortgage plans, three of them allow mortgage payments to increase at a rate of 2.5 percent, 5 percent, or 7.5 percent in the first 5 years of the loan. Through the other two plans, payments increase at a rate of 2 to 3 percent annually over 10 years. Beginning in the sixth year of the 5 year plans and in the eleventh year of the 10 year plans, payments stay the same for the remaining years of the mortgage. FHA mortgages that start with a greater rate of increase over a longer period will have lower payments in the early years.

It is important that while considering this method of financing, homebuyers take the time to critically assess their potential for increased income to offset the rising mortgage payments. They also need to recognize that over the life of the mortgage, they will pay more in interest than they would have had they chosen a mortgage with payments that remained the same over the life of the loan.

Eligibility

Graduated Payment Mortgages are available to anyone who anticipates their earnings to increase substantially and intends to use the mortgaged property as their primary residence.

Application

Any person who is able to meet the credit requirements, cash investment, and mortgage payment is eligible to apply. However, this FHA loan program is limited to owner occupants.

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

FHA Cash-Out Refinancing Instead of a Renovation Refinance?

June 13, 2024 - With an FHA rehab loan, known as the FHA 203(k) rehab loan, you can buy or refinance a home needing improvement. This type of loan is possible, but the house must be brought into compliance with FHA minimum standards and local building code.

Employment and Income Rules for FHA Mortgages

June 11, 2024 - When some look at their loan approval potential, they think more about FICO scores than any other aspect of home loan approval. But income and employment count, too. We examine how influential those factors are below.

Home Loan Variables and Options to Consider

June 10, 2024 - At every stage in the home loan process, there are choices, starting with the basic decision to own your own home instead of renting someone else’s property. What other choices await you on your home loan journey?

FHA Loan Tips for Buying Older Homes

June 9, 2024 - Not every house available for sale is new construction or ever recent construction. Appraisal issues for houses that haven’t existed very long can be much different than for houses a few decades old or older.

FHA Rehab Loans vs. Home Improvement Loans

June 7, 2024 - What’s the difference between FHA rehab and home improvement loans? Some people use the terms interchangeably, but an FHA 203(k) rehab loan is very different from a home equity line of credit or a home improvement loan.