Enables a household with a limited income that is expected to rise to buy a home sooner by making mortgage payments that start small and increase gradually over time.

Nature of Program: The program targets early homeownership by helping first-time homebuyers and others with limited incomes, particularly young families who expect their income to rise, but may not yet be able to handle all of the upfront and monthly costs involved in buying and owning a home.

The Graduated Payment Mortgage (GPM) works in times of high interest rates when first-time homebuyers cannot meet the standard mortgage payment, but expect their incomes to increase substantially in the next 5 to 10 years. The GPM accrues negative amortization so that the borrower's initial mortgage payments are made at a nominally discounted interest rate from the standard prevailing rate. The difference is then added to the principal balance. The GPM program offers five different plans varying in length of time and rate of increase of nominal interest rate. It is anticipated that when the interest rate, and thus the mortgage payment, increases with time the borrower's income also will have increased to accommodate the higher payments. Larger than usual downpayments are required to prevent the total amount of the loan from exceeding the statutory loan-to-value ratios. Downpayments required for GPMs vary in proportion to interest rates on the loans. In all other ways, the GPM is subject to the rules governing ordinary HUD-insured home loans.

Applicant Eligibility: All FHA-approved lenders may make GPMs available to persons who intend to use the mortgage property as their primary residence and who expect to see their income rise appreciably in the future.

Legal Authority: Section 245(a) of the National Housing Act (12 U.S.C. 1715z-10(a)). Regulations are at 24 CFR 203.45.

Administering Office: Assistant Secretary for Housing-Federal Housing Commissioner, U.S. Department of Housing and Urban Development, Washington, DC 20410-8000.

Information Sources: Administering office and HUD field offices. On the Web

Current Status: Active.