source:
  type: guide
  id: fnma-sel-b2-1.4-04
  authority: Fannie Mae Selling Guide B2-1.4-04 — Temporary Interest Rate Buydowns
  description: Fannie Mae Selling Guide B2-1.4-04 — Temporary Interest Rate Buydowns.
  coverage_tier: operative
obligations:
- id: fnma-sel-b2-1.4-04-full
  canonical_id: fnma-sel-b2-1.4-04-full
  section: Fannie Mae Selling Guide B2-1.4-04 — Temporary Interest Rate Buydowns
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B2-1.4-04 — Temporary Interest Rate Buydowns
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B2-1.4-04, Temporary Interest Rate Buydowns (08/07/2024) Introduction
      This topic contains information on temporary interest rate buydowns, including:
      Provisions for Temporary Interest Rate Buydown Plans Buydown Funds Provided
      by Interested Parties to the Transaction Lender-Funded Buydowns Buydown Agreements
      Eligible Transaction Types Qualifying the Borrower Terms of the Buydown Buydown
      Funds Disposing of Buydown Funds MBS Pool Considerations Delivery Requirements
      Provisions for Temporary Interest Rate Buydown Plans The table below provides
      the general requirements under which Fannie Mae purchases or securitizes loans
      subject to temporary interest rate buydown plans. ✓ General Requirements for
      Loans with Temporary Interest Rate Buydown Plans Temporary interest rate buydowns
      are allowed on ﬁxed-rate mortgages and certain ARM plans for principal residences
      or second homes provided the rate reduction does not exceed 3%, and the rate
      increase will not exceed 1% per year. The buydown plan must be a written agreement
      between the party providing the buydown funds and the borrower. Published May
      6, 2026 202 ✓ General Requirements for Loans with Temporary Interest Rate Buydown
      Plans All of the terms of the buydown plan must be disclosed to Fannie Mae,
      the mortgage insurer, and the property appraiser. The mortgage instruments must
      reﬂect the permanent payment terms rather than the terms of the buydown plan.
      In no event may the buydown plan change the terms of the mortgage note. Buydown
      Funds Provided by Interested Parties to the Transaction When the source of the
      buydown funds is an interested party to the property sale or purchase transaction,
      Fannie Mae’s interested-party contribution limits apply. (See B3-4.1-02, Interested
      Party Contributions (IPCs).) Lender-Funded Buydowns When the lender funds the
      buydown, the buydown agreement must require that the funds in the buydown account
      be transferred to the new servicer if the mortgage is included as part of a
      subsequent transfer of servicing. Buydown Agreements The buydown agreement must
      provide that the borrower is not relieved of the obligation to make the mortgage
      payments required by the terms of the mortgage note if, for any reason, the
      buydown funds are not available. The buydown agreement may include an option
      for the buydown funds to be returned to the borrower or to the lender, if it
      funded the buydown, if the mortgage is paid oﬀ before all of the funds have
      been applied. A copy of the buydown agreement must be included in the delivery
      documentation for the mortgage. Eligible Transaction Types The following table
      lists the transaction types that are eligible and ineligible for temporary buydowns:
      Transaction Type Eligibility Principal residence Eligible Second homes Eligible
      Published May 6, 2026 203 Transaction Type Eligibility Investor properties Ineligible
      Cash-out reﬁnance transactions Ineligible ARMs Restricted For speciﬁc ARM plan
      restrictions, refer to the following: B2-1.4-02, Adjustable-Rate Mortgages (ARMs),
      and B5-4.1-02, Texas Section 50(a)(6) Loan Eligibility. Qualifying the Borrower
      When underwriting loans that have a temporary interest rate buydown, the lender
      must qualify the borrower based on the note rate without consideration of the
      bought-down rate. For qualifying requirements, see B3-6-04, Qualifying Payment
      Requirements. Terms of the Buydown Fannie Mae does not place a limit on the
      total dollar amount of an interest rate buydown. The total dollar amount of
      an interest rate buydown must be consistent with the terms of the buydown period.
      An interest rate buydown plan must provide for: a buydown period not greater
      than 3 years, and increases of not more than 1% in the portion of the interest
      rate paid by the borrower in each 1- year interval. More frequent changes are
      permitted as long as the total annual increase does not exceed 1%. The table
      below provides a list of buydown types. Interest rate buydown type When a temporary
      reduction in the initial rate of a loan provides for... Moderate • a diﬀerence
      of 2 percentage points or less between the actual note rate and the "bought-down"
      interest rate, and • a buydown period of two years or less. Published May 6,
      2026 204 Interest rate buydown type When a temporary reduction in the initial
      rate of a loan provides for... Signiﬁcant • a diﬀerence of more than 2 percentage
      points between the actual rate and the "bought-down" rate, or • a buydown period
      greater than two years. Buydown Funds The table below provides Fannie Mae requirements
      for treatment of buydown funds. ✓ Requirement Buydown accounts must be established
      and fully funded by the time the lender submits the mortgage to Fannie Mae for
      purchase or securitization. Funds for buydown accounts must be deposited into
      custodial bank accounts. Note: Buydown funds cannot be included in accounts
      with the lender’s other corporate funds. The borrower’s only interest in buydown
      funds is to have them applied toward payments as they come due under the note.
      Buydown funds are not refundable unless the mortgage is paid oﬀ before all the
      funds have been applied. Buydown funds cannot be used to pay past-due payments.
      Buydown funds cannot be used to reduce the mortgage amount for purposes of determining
      the LTV ratio. Disposing of Buydown Funds If the mortgage is liquidated or the
      property is sold during the buydown period, the lender should dispose of the
      buydown funds in the following manner: Published May 6, 2026 205 Status of Mortgage
      Disposition of Funds The mortgage is paid in full. The funds should be credited
      to the total amount required to pay oﬀ the mortgage, or they may be returned
      to either the borrower or the lender as speciﬁed in the buydown agreement. The
      mortgage is foreclosed. The funds are used to reduce the mortgage debt. 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 plan. MBS Pool Considerations When a lender includes a mortgage
      with a signiﬁcant interest rate buydown—such as a 3-2-1 temporary interest rate
      buydown—in an MBS pool, there are restrictions on the maximum amount of loans
      that can have a signiﬁcant temporary buydown. See C3-2-01, Determining Eligibility
      for Loans Pooled into MBS, for additional information. Delivery Requirements
      The following special feature codes must be delivered, depending on the type
      of interest-rate buydown: loans with moderate interest rate buydowns - SFC 009,
      or loans with signiﬁcant interest rate buydowns - SFC 014. Recent Related Announcements
      The table below provides references to recently issued Announcements that are
      related to this topic. Announcement Issue Date Announcement SEL-2024-05 August
      07, 2024 Section B2-1.5, Other Loan Attributes and Related Policies Published
      May 6, 2026 206'
  judgment: false
