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Mortgages with Temporary Subsidy Buydown Plans

Increase your market potential by offering borrowers lower initial payments and the stability of predictable payment increases.

Temporary subsidy buydown plans are a good fit for borrowers who have the capacity for higher earnings within a few years of obtaining a mortgage. Buydown plans allow borrowers to benefit from temporary subsidies of the monthly payment of principal and interest.

Offering Features

FeatureRequirements
Property Type
  • 1- to 4-unit Primary Residences
  • Second homes
Eligible Mortgage Products
  • See eligible mortgage products table below.
Transaction Type
  • Purchase transaction only.
Maximum LTV Ratios (without secondary financing)
  • Maximum LTV ratios must comply with Single-Family Seller/Servicer Guide (Guide) Section 23.4.
Eligibility/UnderwritingLimited Buydown MortgagesExtended Buydown Mortgages
 
  • Initial interest rate is temporarily reduced no more than two percent below the note rate and increased by no more than one percent annually for no more than two years.
  • For a primary residence, the monthly housing expense-to-income ratio may be calculated using the monthly payment at the initial interest rate.
  • For a second home, the monthly debt payment-to-income ratio must be calculated using the note rate.
  • If reserves are required, the reserves must be calculated using the note rate.
  • Initial interest rate is temporarily reduced no more than three percent below the note rate and increased by no more than one percent annually for more than two but no more than three years.
  • For a primary residence with an LTV ratio equal to or less than 80 percent, the monthly housing expense-to-income ratio may be calculated using the monthly payment at the initial interest rate.
  • For a primary residence with an LTV ratio greater than 80 percent, the monthly housing expense-to-income ratio must be calculated using the monthly payment at the second year interest rate.
  • For a second home, the monthly debt payment-to-income ratio must be calculated using the coupon rate.
  • If reserves are required, the reserves must be calculated using the note rate.
Execution Options
  • Sale options based on individual mortgage product used with temporary subsidy buydowns.
Delivery Requirements/Fees
  • Servicing-retained and Servicing-released fixed-rate Cash*
  • WAC ARM Cash
  • Fixed-rate Guarantor
  • WAC ARM Guarantor
  • MultiLender Swap

* See our selling system availability matrix for a list of specific mortgages eligible for sale best efforts or mandatory, servicing released.

Delivery Fees
  • Postsettlement delivery fees may apply based on the individual characteristics of the mortgage. See Guide Section 17.20 for information on the delivery and pooling requirements for mortgages with a buydown plan, and Exhibit 19 for details on applicable fees.
Special Delivery Requirements
  • Refer to Guide Section 17.23 (b) for special delivery instructions for mortgages with temporary subsidy buydowns.
Single-Family Seller/Servicer Guide
  • Refer to Guide Section 25.4.

 

Property TypeFixed-rate, 7/1 & 10/1
ARMs and 7/6-month & 10/6-month ARMs
5-1, 3-year* and 5-year ARMs
1-unit primary residence or second home Type Yes Yes
2-unit primary residence or second home Yes Yes
3-4-unit primary residence or second home Yes No

* Extended buydowns are not permitted on 3-year ARMs

Temporary Subsidy Plans for Home Possible® Mortgages

Home Possible Mortgages with temporary subsidy buydown plans give you additional flexibility to qualify teachers, firefighters, law enforcement officers, healthcare workers, and military personnel and if an extended buydown is used, may boost their purchasing power by up to 30 percent.

Two types of buydown plans may be used with Home Possible Mortgages:

Name of Buydown PlanDescriptionOffering EligibilityEligible PropertyCalculation of Monthly Housing Expense-to- Income Ratio
Extended Buydown

An initial interest rate that is:

  • Temporarily reduced to no more than one and a half percentage points below the Note Rate, and
  • Increased by no more than one-half percentage point annually for no more than three years
Home Possible Neighborhood Solution Mortgages only 1-unit and 2-unit Primary Residence other than a Manufactured Home Use the monthly payment at the initial (bought down) interest rate
Limited Buydown

An initial interest rate that is:

  • Temporarily reduced to no more than two percentage points below the Note Rate, and
  • Increased by no more than one percentage point annually for no more than two years
Home Possible and Home Possible Neighborhood Solution Mortgages 1-unit Primary Residences other than a Manufactured Home

If the LTV ratio is greater than 95 percent:

  • Use the monthly payment at the initial (bought down) interest rate plus 1 percent

If the LTV ratio is 95 percent or less:

  • Use the monthly payment at the initial (bought down) interest rate

In addition to the requirements above, buydowns plans, when used with Home Possible Mortgages must not:

  • Have secondary financing with a variable interest rate
  • Use Mortgage Credit Certificates (MCCs)

Lender Benefits

Freddie Mac's Temporary Subsidy Buydown Mortgages help you:

  • Qualify more borrowers who have the capacity for higher earnings within a few years of obtaining a mortgage.
  • Offer reduced initial payments with an initial, bought-down interest rate.
  • Cross-market temporary subsidy buydowns with Home Possible Mortgages.

Benefits for Your Borrowers

Freddie Mac's Temporary Subsidy Buydown Mortgages, provides your borrowers with:

  • Reduced initial payments with a temporarily reduced interest rate.
  • Predictable payment increases based on the predetermined structure of an extended or limited buydown.

For 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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