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What is an FHA Section 245a Loan?

Section 245(a) loans, also called FHA Growing Equity Mortgages, is a type of FHA loan. They provide home loans to borrowers who expect their income to increase gradually over time. 245a loans have a monthly payment that increases annually according to the graduated-payment schedule.

While the mortgage payments change, the interest rate does not, the rate is fixed for the life of the loan. Before applying for a 245a loan you will need to submit a special application explaining your situation to the lender.

245a loans allow you to build equity in your home more quickly and pay off your mortgage faster than the standard 30 years.

FHA Section 245a Loan Requirements

  • 580 credit score
  • 3.5% down payment
  • Maximum 43% DTI ratio
  • Two years of tax returns and W2s
  • Primary residences only
  • 24 month waiting period after bankruptcy

The 5 FHA 245a Plans Available

There are five repayment plans for the 245a mortgage program for borrowers to choose from.

1. Monthly mortgage payments increase 2.5% each year for five years.

2. Monthly mortgage payments increase 5% each year for five years.

3. Monthly mortgage payments increase 7.5% each year for five years.

4. Monthly mortgage payments increase 2.0% percent each year for ten years,

5. Monthly mortgage payments increase 3.0% percent each year for ten years.

Who is Eligible?

The 245(a) loan program is designed specifically for low-to-median income first-time homebuyers or young families whose income will increase over time. These loans have a fixed rate with the mortgage payment starting off low and gradually increasing over time.

Ideal FHA 245(a) borrower

  • Income expected to increase
  • Does not want balloon payments
  • Wants to pay off the mortgage faster
  • Wants to accumulate equity quickly

Like FHA loans, FHA 245a Growing Equity Mortgages require borrowers with a 580 or higher credit score to have a 3.5% down payment. Borrowers with a 500-579 credit score may qualify with 10% down.


Credit Requirements

No Credit History

If you have no credit history then your lender will ask for alternative credit lines, such as rent and phone payments to establish positive payment history


Bankruptcy will not disqualify you for an FHA loan. There is a 24 month waiting period after a chapter 7 bankruptcy, or 12 months if you have extenuating circumstances. You must reestablish positive payment history since your bankruptcy was filed.

Late Payments

A single late payment will not disqualify you however you should not have any. more than one late payment on any of your accounts in the past 12 months


36 month waiting period after a foreclosure, 12 months with extenuating circumstances.

Collections, Judgements, and Federal Debt

FHA rules state that a lender must verify that judgments and Federal debt has been paid, or on a payment plan. Collections will not disqualify you, your lender may require you to pay off collections in certain situations.