A Fannie Mae fixed-rate mortgage has a 6.5% note rate and a seller-funded 2-1 temporary buydown. The borrower's first- and second-year payment contributions are calculated at 4.5% and 5.5%, with the subsidy covering the difference. Which rate is used to qualify the borrower?
Correct Answer
B) Qualify at the 6.5% note rate, not at the 4.5% first-year rate
B. Qualify using the 6.5% note rate. The temporary subsidy does not replace the contractual note rate. Qualification assesses the payment without relying on the bought-down contribution. Scope and exceptions: This is a temporary payment subsidy, not a permanent rate reduction purchased with discount points. Seller funding must separately satisfy applicable contribution and buydown requirements; the qualifying-rate answer alone does not establish eligibility. Source: Qualifying the Borrower; Buydown Funds — https://selling-guide.fanniemae.com/sel/b2-1.4-04/temporary-interest-rate-buydowns
Why This Is the Correct Answer
B. Qualify using the 6.5% note rate. The temporary subsidy does not replace the contractual note rate. Qualification assesses the payment without relying on the bought-down contribution. Scope and exceptions: This is a temporary payment subsidy, not a permanent rate reduction purchased with discount points. Seller funding must separately satisfy applicable contribution and buydown requirements; the qualifying-rate answer alone does not establish eligibility.
Why the Other Options Are Wrong
Option A: Qualify at the 4.5% rate, which is what the borrower pays first
It uses the temporary first-year contribution instead of the note rate.
Option C: Qualify at 5.0%, the average of the two temporary payment rates
Averaging temporary payment rates is not the prescribed method.
Option D: Qualify at 6.5% only where the buydown is funded by the lender
The note-rate rule is not restricted to lender-funded buydowns.
Exam Tip
Separate the note obligation, temporary payment contribution and qualification payment.
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