What is true about interest rate buy downs on FHA loans?

When considering interest rate buydowns on FHA loans, it is essential to note that borrowers must qualify based on the note rate rather than the buydown rate. This means that when lenders assess a borrower's eligibility for a loan, they use the original note rate—the rate at which the loan is set to be repaid over its term—rather than the lower, temporary rate that might result from the buydown.

This qualification process reflects the need for lenders to ensure that borrowers can handle the full financial obligation of the loan. Although the buydown temporarily lowers the monthly payments, the lender must confirm that the borrower can afford the higher payments that will occur once the buydown period ends.

In contrast, while sellers or builders might offer incentives and creative financing options, FHA guidelines still stipulate that qualification must be based on the note rate, promoting responsible lending practices and reducing the risk of borrower default in the long term.