The FHA 203(b) Loan Program - STM Partners

Eligible Transactions
ARM
Alternative
• The ARM Alternative is a lender funded buydown, not an Adjustable Rate
Mortgage (ARM).
• The feature is called the ARM Alternative because it is an alternative for
borrowers who like the low initial interest rate of an ARM but want the interest
rate protection of a fixed rate mortgage.
• The ARM Alternative is a lender funded buydown where the cost of the buydown
is built into the pricing and therefore no buydown funds are required at closing.
Reference: See Section 2.02: The ARM Alternative product description in the
Correspondent Seller Guide for additional information.
Refinances Reference: See the topic Refinances in this product description for information.
Temporary
Buydowns
General Requirements
• Borrower paid temporary interest rate buydowns are not eligible.
• Interest buydowns are permitted on purchase transactions only.
• The loan must be a fixed rate mortgage on an owner occupied principal
residence.
• Builders and sellers may still offer buydowns on the fixed-rate loans; however,
the borrower must qualify at the note rate.
• No adjustment is required to the acquisition cost unless the seller, mortgagee or
other third party contributes cash to the transaction that exceeds the 6% limit
established by HUD.
• The following requirements must be met for all temporary buydowns:
• an agreement must be executed in which the seller, lender or other third
party places funds in escrow with monthly releases to be made to the lender
to subsidize the borrower’s monthly payment during the first years of the
mortgage,
• the buydown is limited to 2% below the Note rate,
• the borrower is qualified on the Note rate,
• the payment increase during the buydown period cannot be greater than 1%
per year and can only occur once each year,
• payments are to be made by the escrow agent to the mortgagee, who is the
holder of the mortgage, or to its servicing agent,
• the FHA case number must have a special suffix code if the loan is a
buydown, and
• the seller or mortgagee may provide the buydown funds subject to the seller
contribution limits.
• The FHA/VA Buydown Agreement (COR 0344) must be completed and signed
by the borrower.
Continued on next page
Section 2.22 July 27, 2012
FHA 203(b) Loan Program Page 24 of 217
Correspondent Seller Guide