I heard a rumor that I wanted to pass along about one of the builders offering prospective applicants 3.0% teaser financing for the first year. That financing then ladder steps to 4% the second year, 5% the third and so on up to 7% in the 5th year. The gamble here is that rates may be down below 5% at least before you get to the 5th year.
Risky move that almost is forcing buyers into considering this ARM type product and the risk that may be involved with it. Would they prequalify a buyer at 3% when they can't afford the payment at 5 or 7%?
I assume regulations on something like that based on a persons income have to be in place assuming borrower could pay max interest vs. intro interest otherwise paper it is written on and backed likely by fannie/freddie they would never purchase as guidelines are there for a reason such as 2008 when ppl could make up alot of stuff, etc. Over certain DTI and no go and the likes
This might not be an ARM product. With rates rising, it's becomming more common for seller funded buydowns. In this case, paid by the builder. Consider it like a closing cost credit, but considerable seller funds are used to buy down the rate for the first year and possibly years 2 and 3. We call it a 3-2-1 buydown. It's designed to make the rate more palatable up front. If this is the type of program you are hearing about, it's completely acceptable on a conventional loan. However, the borrower must qualify for the loan at the full interest rate. Seems like a smart move on the builders part to launch those homes.