Reaching your home buying goals with a graduated payment mortgage

If you're ready to give up apartment living for the luxury of owning a home but don't have the income necessary to afford monthly home loan payments, you can consider a graduated payment mortgage.

These loans are designed for individuals who may not have the money for a conventional mortgage now but expect to see their income grow in the next few years. When you get a GPM, you'll initially have a low interest rate. Each year - typically over a 5- to 10-year period - it will increase until it hits a certain percentage, after which point it will be fixed for the rest of your mortgage term.

Your lower interest rates at the earlier parts of your loan term are possible because of negative amortization. This payment plan typically increases the total amount you'll pay over the life of the loan because the difference between what you would pay in interest with traditional financing and your discounted payment is added to your principal balance.

GPMs are available from any lender that offers home loans through the U.S. Federal Housing Administration. The only eligibility requirements are that you'll use the GPM to finance the purchase of a primary residence and you expect your income to increase in the future.

Is a GPM right for you?

The GPM program was created to help potential first-time home buyers and others with insufficient income get a property they want with affordable financing. Of course, the total mortgage costs are higher, but the benefits could be greater than the costs. 

GPMs are beneficial because they allow you to become a homeowner sooner than you could using a conventional mortgage. If you have a growing family that can't fit comfortably in an apartment or you're tired of renting, this route can be best. These home loans also create room in your budget, giving you more breathing room for home inspection, closing and any renovation costs that may come with your property purchase.

Before getting a GPM, consider the cons as well. The increase in your payments could be sizeable. Ensure your career can offer the salary growth necessary to keep up with the higher costs down the road and remember there's a chance your career trajectory will unexpectedly change. Also, you may be locked into your current career if you cannot find one that offers similar earnings potential.