source:
  type: regulation
  id: hud-4000-1-programs-and-products-section-251-adjustable-rate-mortgages
  authority: HUD Handbook 4000.1 — Programs and Products - Section 251 Adjustable Rate Mortgages (05/02/2023)
  description: "HUD Handbook 4000.1 section \"Programs and Products - Section 251 Adjustable Rate Mortgages\"\
    . Gap-fill (verbatim, title-diff). \n"
obligations:
- id: hud-4000-1-programs-and-products-section-251-adjustable-rate-mortgages-full
  canonical_id: hud-4000-1-programs-and-products-section-251-adjustable-rate-mortgages-full
  section: HUD Handbook 4000.1
  description: "Programs and Products - Section 251 Adjustable Rate Mortgages: f. Section 251 Adjustable\
    \ Rate Mortgages (05/02/2023) \nAn Adjustable Rate Mortgage (ARM) refers to a Mortgage in which the\
    \ interest rate can \nchange annually based on an index plus a margin. \nii. Required Disclosures\
    \ \nThe Borrower must sign a disclosure that explains the terms of the ARM at mortgage…"
  type: do
  tags:
  - regulator-direct
  - section-complete
  - hud
  - 4000-1
  - curated
  primary_source:
    tier: 1
    authority: HUD Handbook 4000.1 — Programs and Products - Section 251 Adjustable Rate Mortgages (05/02/2023)
    source_class: hud-handbook-4000-1
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-06-18T00:00:00+00:00'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: "f. Section 251 Adjustable Rate Mortgages (05/02/2023) \nAn Adjustable Rate Mortgage\
      \ (ARM) refers to a Mortgage in which the interest rate can \nchange annually based on an index\
      \ plus a margin. \nii. Required Disclosures \nThe Borrower must sign a disclosure that explains\
      \ the terms of the ARM at mortgage \niii. ARM Types \nThe Mortgagee must establish the initial interest\
      \ rate and the margin. The margin must be \nconstant for the entire term of the Mortgage. \nThe\
      \ interest rate must remain constant for an initial period of 1, 3, 5, 7, or 10 years, \ndepending\
      \ on the ARM program chosen by the Borrower, and then may change annually \nfor the remainder of\
      \ the mortgage term. \nA 1- and 3-year ARM may increase by one percentage point annually after the\
      \ initial \nfixed interest rate period, and five percentage points over the life of the Mortgage.\
      \ \nA 5-year ARM may either allow for increases of one percentage point annually, and five \npercentage\
      \ points over the life of the Mortgage; or increases of two percentage points \nannually, and six\
      \ points over the life of the Mortgage. \nA 7- and 10-year ARM may only increase by two percentage\
      \ points annually after the \ninitial fixed interest rate period, and six percentage points over\
      \ the life of the Mortgage. \niv. Initial Interest Rate Adjustments \nThe first interest rate adjustment\
      \ must occur in accordance with the following chart: \nIf the ARM is initially \nat a fixed interest\
      \ rate \nfor ... \nThen the first \nadjustment rate change \nmay occur no sooner \nthan ... \nAnd\
      \ no later than ... \n1 year \n12 months \n18 months. \n3 years \n36 months \n42 months. \n5 years\
      \ \n60 months \n66 months. \n7 years \n84 months \n90 months. \n10 years \n120 months \n126 months.\
      \ \n\n \nv. Indices \nThe interest rate governing index may be the 1-Year Constant Maturity Treasury\
      \ (CMT) \nor 30-day average Secured Overnight Financing Rate (SOFR). \nThe 1-Year CMT is the weekly\
      \ average yield on U.S. Treasury Securities, adjusted to a \nconstant maturity of one year, as published\
      \ by the Board of Governors of the Federal \nReserve System in its statistical release on Selected\
      \ Interest Rates (H.15) at \nhttps://www.federalreserve.gov/releases/h15/default.htm. \nThe 30-day\
      \ average SOFR is the compounded average of the SOFR over a rolling 30-day \nperiod, as administered\
      \ and published daily by the Federal Reserve Bank of New York \nand available at: https://www.newyorkfed.org\\\
      markets\\reference-rates\\sofr-averages-andindex. \nvi. Temporary Interest Rate Buydowns \nTemporary\
      \ interest rate buydowns are not permitted with ARM transactions. \nvii. Underwriting Requirements\
      \ \nThe Mortgagee must underwrite the Mortgage based on payments calculated using the \ninitial\
      \ interest rate. \n1-year ARMs \nIf the Loan-to-Value (LTV) is 95 percent or more, the Mortgagee\
      \ must underwrite the \nMortgage based on payments calculated using the initial interest rate plus\
      \ one percent. \nIf the Mortgage is less than 95 percent, the Mortgagee must underwrite the Mortgage\
      \ \nbased on payments calculated using the initial interest rate. \nMortgage Term \nThe ARM must\
      \ be fully amortizing over a period of no more than 30 years. \nix. Required Documentation \n(A)\
      \ Model Note \nThe Mortgagee must use the Model ARM Note for all ARMs. Paragraph 1 of this \nform\
      \ must be adapted or additional paragraphs may be added to provide a full \ndescription of the adjustable\
      \ rate feature of the Mortgage to the extent required by \nstate or local law to create an enforceable\
      \ agreement. \nThe Mortgagee must ensure that the ARM Note contains amortization provisions that\
      \ \nallow for annual adjustments in the rate of interest charged. \n\n \n(B) Mortgage Document \n\
      The mortgage documents for an ARM must specify the: \n• initial interest rate; \n• margin; \n• date\
      \ of the first adjustment to the interest rate; and \n• frequency of adjustments."
    drafter_attestation: Verbatim section from snapshot 8c03836f77f317e1; boundary human-curated + substring-verified
      (2026-07-23).
  judgment: false
