Which statement is true about interest rate buy downs on FHA loans?

In the context of FHA loans, the true statement regarding interest rate buy downs is that a borrower must qualify at the note rate. This means that when determining whether a borrower meets the necessary qualifications for the loan, lenders evaluate the borrower's ability to repay based on the note rate, which is the stated interest rate for the loan before any temporary buydown is applied. This ensures that borrowers are assessed based on the full cost of the loan, reflecting their long-term financial responsibility rather than just any initial lower payments due to a buydown.

When a borrower opts for an interest rate buydown, it typically means they will have lower monthly payments for the initial period of the mortgage. However, during the qualification process, it is imperative that the lender considers the note rate for evaluating the borrower's financial situation. This practice is crucial to ensure that borrowers can handle their obligations when the loan adjusts to the standard payment level after the buydown period ends.