Adjustable Rate Mortgages
and Interest Buydowns

Information by State  Print version

Chapter 2
Mortgage Credit Guidelines
Page 2-13

Adjustable rate mortgages: Borrowers who are utilizing the 1-year adjustable rate mortgage (ARM) with a loan to value (LTV) of 95% or higher must qualify at the initial rate plus 1%, i.e., the anticipated maximum second year rate. (LTV is defined as the base loan amount divided by the appraiser's estimate of value, or the percentage shown on the MCAW.) FHA Hybrid ARMs are underwritten at the initial interest rate.

Please see: HUD Handbook 4155.1, Rev-5, Paragraph 2-15 and Mortgagee Letters 2004-10 and 2005-14

Interest Rate Buydowns: FHA no longer permits underwriting at the buydown rate on fixed-rate mortgages. Builders and sellers may offer buydowns but the borrower must qualify at the note rate.

Please see: Mortgagee Letter 2004-28