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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
Ineligible Mortgage Products
  • Buydown plans are not permitted for mortgages with the following characteristics
    • 6-month ARMs; 1-year ARMs; and 3/1 ARMs
    • Cash-out refinance mortgages
    • "No cash-out" refinance mortgages with a buydown plan funded from premium financing
    • Investment Property mortgages
    • Mortgages secured by manufactured homes
  • For mortgages with a buydown plan, the initial the initial interest rate may not be more than three percentage points below the Note Rate.
  • The buydown plan may not extend for more than three years after the first scheduled payment date.
  • Buydown plans are not permitted for Freddie Mac Home Possible® mortgages secured by 3- to 4-unit properties.
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/Underwriting
  • For fixed-rate mortgages, the borrower must be qualified using monthly payments calculated at the Note Rate.
  • For ARMs, the borrower must be qualified using monthly payments calculated in accordance with Guide Section 30.16.
  • If reserves are required, the reserves must be calculated using the Note Rate.
  • If a Home Possible mortgage with a temporary subsidy buydown plan is subject to secondary financing, including an Affordable Second® that requires repayment to begin before the due date of the 61st monthly payment under the Home Possible mortgage, the secondary financing must have a fixed-interest rate. 

Limited 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.

 

Extended Buydown Mortgages

  • 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.
Documentation
  • See Guide Section 25.4 (e) for special documentation requirements related to:
    • Application of buydown funds
    • Custodial account requirements for buydowns
    • References
    • Interest rate and monthly payments
    • Servicing requirements
Execution Options
  • Sale options based on individual mortgage product used with temporary subsidy buydowns.
Delivery Requirements
  • See Guide Section 17.23 for information on the delivery and pooling requirements for mortgages with a temporary buydown plan.
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 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

Lender Benefits

Mortgages with temporary subsidy buydown plans 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

Mortgages with temporary subsidy buydown plans provide 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.

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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