HUD HOC Reference Guide

Adjustable Rate Mortgages (ARMs): Borrowers who are utilizing the 1-year 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.

FHA Hybrid ARMs are underwritten at the initial interest rate.

Please see: Handbook 4155.1, Section 6.B

Temporary Interest Rate Buy Down: Borrowers, sellers, builders or lenders may pay/offer buy downs for fixed rate mortgages for 1-4 unit properties (not permitted for ARMs), however, FHA no longer permits underwriting at the bought down rate; the borrower must qualify at the full note rate. If the buy down is paid by an interested party (seller/builder/lender), those funds must be considered as part of the permitted contribution limit.

Please see: HUD Handbook 4155.1, Section 6.A