d. If it is Unclear Whether Borrower’s Income Can Keep Pace with Increases

The loan application must be underwritten based on the full payment amount if there are no strong indications that the income used to support the application can reasonable be expected to keep pace with the increases in loan payments.

The buydown arrangement can be considered a compensating factor.

If the residual income and/or debt-to-income ratio is marginal, the buydown plan (used to offset a short-term debts), along with other compensating factors, may support approval of the loan.  See “Compensating Factors” in section 10 of chapter 4.

Provide a statement signed by the underwriter giving reasons for approval.

The terms of the buydown arrangement are not limited to specific criteria such as a minimum or maximum number of years for application of the assistance payments.

It is the lender’s responsibility to review and determine the acceptability of the buydown.

e. Other Requirements

Lenders must provide the veteran-borrower with a clear, written explanation of the buydown agreement.

A copy of the buydown and escrow agreements must accompany the loan submission.