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Financed Permanent Buydown Mortgages

Lower monthly payments and no additional cash at closing

Important Notice

Effective January 1, 2015, we will no longer purchase ARMs with lookback periods of less than 45 days. Review Single-Family Seller/Servicer Guide Bulletin 2014-12 for more information, including the October 20, 2014, cutoff date in the selling system.

Your financially savvy borrowers are always looking for more creative ways to finance their home purchases and increase their home purchasing power.

The Financed Permanent Buydown Mortgage lowers your borrowers' monthly payments without requiring additional cash at closing. With this offering, your borrowers can permanently reduce their interest rate by financing up to three discount points into the loan amount for fixed-rate mortgages and 5/6-month, 7/6-month, 10/6-month, 5/1, 7/1 and 10/1 ARMs. By financing the discount points up front, the interest rate can be up to 75 basis points lower than prevailing market rates.

By combining a Financed Permanent Buydown Mortgage with other flexible Freddie Mac mortgage products, you'll qualify more borrowers for larger mortgage amounts. For your refinance borrowers, a Financed Permanent Buydown Mortgage may be an exceptional option to refinance from high interest-rate loans to below-market interest rates.

FeatureRequirements
Property Type
  • 1- to 4-unit primary residences, including condos, PUDs and manufactured homes.
  • Second homes
  • 1- to 4-unit investment properties
Eligible Mortgage Products
  • 15-, 20-, and 30- year fixed-rate mortgages
  • 5/1, 7/1 and 10/1 CMT- or LIBOR-indexed ARMs
  • 5/6-month, 7/6-month or 10/6-month LIBOR-indexed ARMs
Transaction Type
  • Purchase
  • No cash-out refinance
  • Cash-out refinance
Maximum LTV Ratios (without secondary financing)
  • Maximum LTV ratios must comply with Single-Family Seller/Servicer Guide (Guide) Section 23.4.1
Eligibility/Underwriting
  • Loan Prospector®
  • Non-Loan Prospector
  • Minimum Indicator Score of 620 unless otherwise specified in the Guide.
  • All mortgages must meet the risk class and/or minimum Indicator Score requirements in Guide Exhibit 25, where applicable.
  • Maximum debt-to-income ratio of 45 percent for manually underwritten mortgages.
  • Borrower qualification is based on the monthly housing expense-to-income ratio calculated using the monthly payment at the permanent bought-down note rate.
  • The maximum amount a borrower can finance for a permanent buydown is three discount points, calculated based on the base mortgage amount.
  • For ARMs, the permanent buydown is in effect for the initial note rate and each note rate adjustment for the entire term of the mortgage. The lifetime ceiling will be calculated using the permanent bought-down initial note rate. The permanent buydown does not affect the margin, initial cap or periodic cap.
  • Mortgage insurance coverage required per Guide Section 27.1 based on the gross LTV.
  • Financed discount points count toward the HOEPA 8 percent limits. Freddie Mac does not purchase HOEPA loans.
Execution Options
  • Servicing-retained Cash
  • WAC ARM Cash
  • Fixed-rate Guarantor
  • WAC ARM Guarantor
  • MultiLender Swap
Delivery Fees
  • Postsettlement delivery fees apply based on the unpaid principal balance of the mortgage (including the financed discount points) and the gross LTV ratio.
  • See Guide Exhibit 19 for details on these fees and all other applicable fees.
Special Delivery Requirements
  • See Guide Section 17.30 for special delivery instructions for all Financed Permanent Buydown Mortgages. 
Single-Family Seller/Servicer Guide
  • Refer to Guide Chapter F33.

Download a Financed Permanent Buydown Mortgages fact sheet for more details.

Lender Benefits

Use Financed Permanent Buydown Mortgages to:

  • Offer better rates and lower payments to your borrowers.
  • Retain more borrowers while providing an attractive refinance option for borrowers with ARMs that are adjusting to higher rates, to minimize payment shock.

Benefits for Your Borrowers

Financed Permanent Buydown Mortgages help your borrowers:

  • Lower monthly payments with no additional cash at closing.
  • Obtain a lower interest rate while increasing purchasing power.

Get More Information

Training Opportunities

Visit The Learning Center for live and recorded web conferences, access to classroom-style workshops and self-study tools – all designed to help you stay competitive, serve more borrowers and make it easier to do business with us.

The information in this document is not a replacement or substitute for information found in the Single-Family Seller/Servicer Guide and/or the terms of your Master Agreement and/or Master Commitment.

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