Did You Know?

Growing Equity Mortgages are designed for first-time homebuyers who believe their income will increase in the coming years.

Get an FHA Refinance Loan
Get an FHA Purchase Loan
FHALoan.com
Get an FHA Refinance Loan
Get an FHA Purchase Loan
Click to Start Your Refinance or Purchase Loan

Growing Equity Mortgage

FHA Growing Equity Mortgage

Growing Equity Mortgages (GEMs) are part of the FHA’s Section 245(a) loan type that start off with lower initial payments, and increase according to a predetermined schedule over the life of the loan. Similar to a Graduated Payment Mortgage, GEMs are a good option for potential homebuyers who expect higher earnings in the future.

How Does a GEM Work?

Growing Equity Mortgages allow you to purchase a home sooner than you would be able to with most other financing options. There is an introductory year during which your monthly payments are based on a 30-year, fixed-rate schedule. After this initial year ends, your payments increase annually at a fixed rate, depending on the plan that you choose.

The FHA offers five different GEM plans:

  • Plan I (Code L):
    1% fixed increase per year
  • Plan II (Code M):
    2% fixed increase per year
  • Plan III (Code N):
    3% fixed increase per year
  • Plan IV (Code O):
    4% fixed increase per year
  • Plan V (Code P):
    5% fixed increase per year

GEMs are popular because they can help you own your home sooner. While your introductory payments are calculated based on a 30-year mortgage model, the actual term of your loan is shorter due to the increasing annual payment rate. Your loan term should not exceed 22 years with the lowest plan of a 1% increase, and can be as short as 15 years with the 5% increase.

Every month, more and more money goes towards the principal amount, and the mortgage is paid off faster, which helps you save on interest. So instead of paying interest over 30 years, you'll pay only as long as it takes to pay off the full principal balance, which is a shorter amount of time due to the GEM guidelines.

Who's it For?

Unlike a Graduated Payment Mortgage, a GEM’s scheduled increments of monthly payments result in a shorter loan term and lower cost to the borrower, because it comes without the risk of negative amortization that can lead to an unmanageable balloon payment.

Though HUD’s 245(a) program was designed to assist low-income first-time homebuyers purchase a home sooner than they would be able to with conventional mortgages, it is open to repeat homebuyers as well. They can all take advantage of the FHA’s lenient qualification requirements such as low down payments and credit scores.

Similar to a Graduated Payment Mortgages, this type of home loan is only eligible to purchase single-family properties or condominiums that will serve as the borrower’s primary residence and not an investment property. This loan type is ideal for borrowers who expect to see a rise in their income and want to own a home sooner. However, it is also important that borrowers be completely positive of their future earning potential and job security when deciding to finance their home with a Growing Equity Mortgage.

Learn About the One-Time Close Constuction Loan
Growing equity mortgages are popular because they can help you purchase a new home sooner and pay less in interest. FHA offers five different payment plans.
See Your Credit Scores From All 3 Bureaus
See Your Credit Scores From All 3 Bureaus

FHA Loan Articles

Mortgage Rate Predictions for 2024

In the last days of November 2023, mortgage loan rates flirted with the 8% range but have since backed away, showing small but continued improvement. What does this mean for house hunters considering their options to become homeowners soon?

Is It Cheaper to Buy a Home With an FHA Loan or to Rent?

In May 2023, USA Today published some facts and figures about the state of the housing market in America. If you are weighing your options for an FHA mortgage and trying to decide if it’s cheaper to buy or rent, your zip code may have a lot to do with the answers you get.

Why Do FHA Loans Have Borrowing Limits?

FHA loan limits serve as a crucial mechanism to balance financial sustainability, regional variations in housing costs, and the agency's mission to promote homeownership, particularly for those with limited financial resources.

What to Do About High Interest Rates?

Mortgage rates are hitting prospective homeowners hard this year and are approaching 8%, a rate that didn't seem very likely last winter. With so many people priced out of the market by the combination of high rates and a dwindling supply of homes.

What to Know About the FHA Handbook

The FHA Handbook serves as a crucial resource for mortgage lenders, appraisers, underwriters, and other professionals involved in the origination and servicing of FHA-insured home loans. It outlines the policies and requirements for FHA-insured mortgages.

Some Important Points About FHA Rehab Loans

FHA rehab loans are a specialized type of mortgage loan offered by the Federal Housing Administration that allows borrowers to finance both the purchase or refinance of a home and the cost of needed repairs.

FHALoan.com is not a government agency. We do not offer or have any affiliation with loan modification, foreclosure prevention, payday loan, or short term loan services. Neither FHALoan.com nor its advertisers charge a fee or require anything other than a submission of qualifying information for comparison shopping ads. We do not ask users to surrender or transfer title. We do not ask users to bypass their lender. We encourage users to contact their lawyers, credit counselors, lenders, and housing counselors.

SecureRights Advertiser Contact Information