VA Growing Equity Mortgages (GEM)

Note: The VA Growing Equity Mortgage (GEM) program has been discontinued. This article is for educational purposes only and does not reflect currently available VA loan options. However, understanding what GEMs were—and what similar tools exist today—can help you make informed decisions about building equity and managing payments with your VA loan.

What Was a VA Growing Equity Mortgage?

VA home loans at one time included options such as Growing Equity Mortgages (GEMs), which were designed to help borrowers ease into mortgage payments, grow equity faster, and pay off the loan sooner. These were specialty loan structures offered by participating VA-approved lenders—not all lenders offered them.

GEMs were particularly attractive to borrowers expecting their income to rise over time. Instead of locking into a fixed payment for 30 years, VA GEMs allowed borrowers to start with lower payments that gradually increased each year. The extra amount from the increase wasn’t interest—it was applied directly to the principal. That meant you were knocking down the loan balance faster and saving thousands in interest over the life of the loan.

How VA Growing Equity Mortgages Worked

VA GEMs were based on a 30-year repayment plan, but with a unique feature: scheduled increases to the monthly mortgage payment. These increases were:

• Typically calculated at a fixed annual percentage, such as 3%
• Applied directly to the principal of the loan
• Set to occur each year for a certain period (often the first 5–10 years)
• Followed by level payments for the remaining loan term

For example, a borrower might begin year one with a $1,200 monthly payment. In year two, that could rise to $1,236. Year three would increase again—each time building equity faster while shortening the total time to repay.

The Department of Veterans Affairs once described the loan this way:

“Loan payoff may occur within a few years after the mortgage payments level off.”

But not everyone could qualify. VA underwriting rules required lenders to determine not just if you could afford the initial lower payments, but also the higher payments that would come down the line. That meant you had to show income stability and likely future income growth to qualify for a GEM loan.

Underwriting and Income Requirements for GEMs

To qualify for a VA GEM, borrowers had to meet strict income documentation requirements. Lenders needed to see that you could afford the loan now and in the future, including:

• W-2s or tax returns
• Current pay stubs
• Projected income (especially important for junior enlisted members or recent college grads expecting career progression)

Not all income counts equally. VA loan rules define “verifiable income” as income that the lender can reasonably expect to continue for a set period—usually at least three years. That can be a challenge if you’ve recently started earning commissions, working freelance or as a contractor, or made a major career change.

Those who have been self-employed or commission-based for less than 12–24 months may face a more difficult time getting that income approved—not just for GEMs, but for any VA mortgage.

Why GEMs Are No Longer Available

In 2019, the Department of Veterans Affairs issued a major revision to the VA Lender’s Handbook (VA Pamphlet 26-7), which governs how VA loans are processed. One major change? The complete removal of all references to Growing Equity Mortgages (GEMs) and Graduated Payment Mortgages (GPMs).

Prior to the update, these specialty loan types were described in Chapter 7, which covered “Loans Requiring Special Underwriting, Guaranty and Other Considerations.” Today, Chapter 7 no longer includes GEMs or GPMs.

That means VA lenders are no longer authorized to offer VA-backed GEMs.

If you’ve seen references to VA GEMs elsewhere online, they’re likely outdated. Unfortunately, some websites still mention GEMs as if they’re current options—but they haven’t been for years. Always refer to the most recent version of the VA Lender’s Handbook (available through KnowVA) or consult a VA-approved lender for current loan offerings.

Alternatives to VA Growing Equity Mortgages

Even though GEMs are off the table, the VA loan program still provides tools to help you lower your initial monthly payment, ease into a mortgage, and build equity strategically. Here are a few:

VA Temporary Interest Rate Buydowns

Temporary buydowns let you lower your interest rate and monthly payment during the early years of your loan. This can be a great alternative to a GEM structure if you expect your income to rise over time.

For example:

• A 2-1 buydown means your rate is 2% lower in year one, 1% lower in year two, and fully adjusts in year three.
• A 3-2-1 buydown offers even longer-term payment relief.

The cost of the buydown is often covered by the seller, builder, or lender—not the borrower directly. Funds go into an escrow account to make up the difference in payment.

VA loan rules allow temporary buydowns on any fixed-rate VA loan, making them a flexible option for first-time and budget-conscious buyers.

VA Adjustable-Rate Mortgages (ARMs)

VA ARMs start with a low introductory rate—often lower than fixed-rate options—and adjust annually after the initial period. These are suitable if:

• You’re planning to refinance or sell within a few years
• You need the lowest possible initial payment
• You have a plan for handling future rate increases

VA ARMs have caps on how much the rate can adjust, both annually and over the life of the loan, to protect borrowers from dramatic swings.

Just like with GEMs, the lender is required to verify that you can afford both the starting payment and the adjusted payment in future years.

Final Thoughts

VA Growing Equity Mortgages once offered a structured way for servicemembers and veterans to build equity quickly and pay off their home loans faster. But in today’s lending environment, that option is no longer available.

Still, your VA loan benefit is one of the most flexible and powerful mortgage options available—and you have tools at your disposal to tailor your loan structure to your needs.

• Need lower payments now? Consider a temporary buydown.
• Expecting a short stay in your home? Explore a VA ARM.
• Want stability long-term? A 30-year fixed VA loan remains a top choice, with no down payment required and no private mortgage insurance (PMI).

Work with a VA-approved lender to explore your options and determine the best path forward based on your career, income, and long-term goals.