Are you just getting started in a new career and are ready to purchase a home? Then a growing equity mortgage may be the perfect solution for you. A growing equity mortgage is a home equity mortgage loan that is designed for young professionals, first time home buyers, or families just getting started. If you are on track to purchase a home, but are not quite able to qualify for a regular mortgage due to limited income, then this FHA-insured loan program may be just right for you.
Buyers who presently have a limited income, but expect their monthly earnings to increase, might qualify to purchase a home with the help of a growing equity mortgage. With this type of FHA Section 245(a) mortgage, monthly payments start out small and increase gradually over time. As payments grow, the increased payment amount is applied toward the loan principal, which reduces the term of the loan. A growing equity mortgage also allows owners who are seeking to reduce their mortgage term to apply the increases in their monthly payments to the outstanding principal balance. They are available as a first mortgage only, not as second mortgages or home equity credit lines.
The program is designed to help low and moderate-income buyers by enabling loans while keeping initial costs low. Since their current income is limited, these buyers probably could not qualify for a regular mortgage using the conventional underwriting guidelines. Lenders have more confidence to extend loans under this program, because it is insured by the FHA. They are therefore protected against defaults on the mortgage payments.
With a growing equity home mortgage, buyers are able to buy property sooner than if they had to wait for their income to increase enough to qualify for a conventional mortgage. This is because the initial payments are low, and they increase only gradually each year, as the buyer’s income is expected to increase in order to meet the larger payments.
Growing equity mortgages are available for insurance under 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.
Each mortgage considered must meet the requirements of the section under which it is insured, although some exceptions are available.
Five levels of growing equity mortgage plans are available. Each plan calls for a fixed-percentage increase in monthly payments for each year of the loan. The first-year payments, which are applied to principal and interest, are based on a 30-year schedule. Depending on the selected plan, payment amounts for subsequent years will increase from one to five percent each year. The actual mortgage term will be a maximum of 22 years, and may be less, depending on which plan is selected.
Most lenders using this mortgage program make requests through a ‘direct endorsement’ provision , which allows them to take applications without submitting any HUD paperwork.
A growing home equity mortgage loan is available to any buyer who anticipates his or her income to increase substantially over time. The buyer must also intend to use the property as a primary residence.
The best way to secure a FHA growing equity mortgage is to work with a mortgage broker who specializes in FHA loans.
Go back to Aspendance Realty home to learn about second mortgages.
