If a loan is a "HPML" loan but it does not exceed 3.5 to make it a "HPCT", and it's secured by the customer's primary dwelling; when underwriting the loan does the lender factor in the balloon payment in the DTI?
Since you ask about the 3.5% allowance for HPCT status, I have to assume you're asking about a subordinate lien loan or a QM under one of the small creditor QM rules.
If it's a balloon loan under .43(f), it would have to have a term of at least 5 years, a regular periodic payment based on an amortization period of no more than 30 years. You would be permitted to ignore the balloon payment when determining the applicant's ability to repay and when calculating the DTI.