A borrower has a 2-1 buydown at a 7% note rate (5% in Year 1, 6% in Year 2, 7% in Year 3+). At what rate must the borrower qualify?

Correct answer: 7% — the full note rate

CRITICAL EXAM TRAP: The borrower qualifies at the NOTE RATE (7%), NOT the reduced Year 1 rate (5%). Lenders must ensure the borrower can afford the FULL payment when the buydown period ends. If they could only qualify at 5%, payment shock in Year 3 would likely cause default. Fannie Mae guidelines explicitly require qualification at the note rate for temporary buydowns. This is one of the most commonly missed concepts on the exam.