© 2018 Freddie Mac Single-Family Seller Servicer Guide
Freddie Mac will purchase Mortgages with temporary subsidy buydown plans (buydown plans) under the terms of the Purchase Documents and this section. Buydown plans allow the Borrower to benefit from temporary subsidies of the monthly payment of principal and interest.
(a) EligibilityBuydown plans are not permitted for Mortgages with the following characteristics:
- 6-month ARMs; 1/1 ARMs; and 3/1 ARMs
- Cash-out refinance Mortgages
- "No cash-out" refinance Mortgages with a buydown plan funded from lender credit derived from an increase in the interest rate
- Investment Property Mortgages
- Mortgages secured by Manufactured Homes
Home Possible® Mortgages with buydown plans must meet the requirements of this section and Section 4501.5.
For any Mortgage with a buydown plan, the initial interest rate may not be more than three percentage points below the Note Rate. Also, the buydown plan may not extend for more than three years after the first scheduled payment date.
(b) Special underwriting requirements for Limited Buydown MortgagesFor a Limited Buydown Mortgage, the initial interest rate is:
- Temporarily reduced to no more than two percentage points below the Note Rate
- Increased by no more than one percentage point annually for no more than two years
Property Type Fixed-Rate,
7/1 and
10/1 ARMs, and
7/6-Month and
10/6-Month ARMs5/1, 3/3 and 5/5 ARMs 1-unit Primary Residence and second home Yes Yes 2-unit Primary Residence Yes Yes 3- to 4-unit Primary Residence Yes No
Borrower qualification:
- 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 Section 4401.8
- If reserves are required, the reserves must be calculated using the Note Rate
(c) Special underwriting requirements for Extended Buydown MortgagesFreddie Mac will purchase Extended Buydown Mortgages with initial interest rates that are:
- Temporarily reduced no more than three percentage points below the Note Rate
- Increased by no more than one percentage point annually for more than two but no more than three years
Property Type Fixed-Rate,
7/1 and
10/1 ARMs, and
7/6-Month and
10/6-Month ARMs5/1 and 5/5 ARMs 1-unit Primary Residence and second home Yes Yes 2-unit Primary Residence Yes Yes 3- to 4-unit Primary Residence Yes No
Borrower qualification:
- 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 Section 4401.8
- If reserves are required, the reserves must be calculated using the Note Rate
(d) Delivery requirements for Mortgages with a buydown plan
See Section 6302.18 for information on the delivery and pooling requirements for Mortgages with a buydown plan.
(e) Special documentation requirements for Mortgages with buydown plans:
(i) Application of buydown funds
The Borrower must agree in writing that the buydown funds in the buydown account will be automatically applied each month to reduce the monthly payment of principal and interest to the extent provided under the subsidy buydown agreement. The buydown agreement must provide that the Borrower will not be relieved of the obligation to make the full monthly Mortgage payments required by the terms of the Mortgage Note if, for any reason, the buydown funds are not available or the buydown funds are not paid.The Mortgage file must contain a copy of the executed buydown agreement and must clearly show the Seller's calculations of the total cost of the temporary subsidy buydown, any interested party contribution and the annual percentage increase in the Borrower's monthly principal and interest payment.
(ii) Custodial Account requirements for buydowns
Each subsidy buydown must be fully funded at origination. See Sections 8302.1(b) and 8302.4(b) for Custodial Account requirements for buydown plans.The buydown agreement must state that the Borrower will not assign, transfer or close the account, or withdraw buydown funds, except as permitted by the terms of the buydown agreement.
(iii) References
No references to the buydown plan are permitted in the Note and Security Instruments.
(iv) Interest rate and monthly payments
The interest rate and monthly payments shown in the Note must be calculated without reference to the temporary buydown subsidy. In no event may the temporary subsidy buydown agreement change the terms of the Note or Mortgage.
(v) Servicing requirements
If the Mortgage is foreclosed, the funds in the buydown account must be used to reduce the Mortgage debt. If the Mortgage is paid in full, the funds must be distributed in accordance with the buydown agreement. If the property is sold and the Mortgage is assumed by the purchaser, the funds may continue to be used to reduce the Mortgage payments under the original terms of the buydown agreement.