What is the minimum credit score for an ARM loan?
ARM credit score qualifications
ARM loan guidelines require a 5% minimum down payment, compared to the 3% minimum for fixed-rate conventional loans. You'll need a higher credit score for conventional ARMs. You may need a score of 640 for a conventional ARM, compared to 620 for fixed-rate loans. You may need to qualify at the worst-case rate.
Down payments for ARMs are usually the same as fixed-rate loans, but loan types allow for lower down payments (FHA or VA loans). In most cases, expect a minimum of 5% down, though 20% is preferred because private mortgage insurance (PMI) is often required on loans with less than a 20% down payment.
You'll typically need a down payment of at least 3% to 5% for a conventional ARM loan. Don't forget that a down payment of less than 20% will require you to pay private mortgage insurance (PMI).
7/1 ARM qualifications
Most lenders like to see applicants with at least a “fair” credit score, meaning 620. They'll also look at your debt-to-income (DTI) ratio and the size of the down payment you're offering. Most lenders will require at least a 3 percent down payment.
ARM credit score qualifications
You'll need a credit score of at least 620 to qualify for a conventional ARM. FHA ARMs have a lower threshold: 580. VA ARMs don't have a blanket credit score requirement, but many VA lenders look for at least 620.
Ease Of Qualification
If you have a slightly higher DTI ratio, you may have an easier time qualifying for an ARM than a fixed-rate mortgage.
Is an ARM a good idea? ARMs typically have lower introductory rates than fixed-rate mortgages. So they can be a good deal for homebuyers who want lower monthly payments in the beginning and are comfortable with the risk of higher payments after the introductory rate period.
An ARM has four components: (1) an index, (2) a margin, (3) an interest rate cap structure, and (4) an initial interest rate period. When the initial interest rate period has expired, the new interest rate is calculated by adding a margin to the index.
- Better, 3.89%
- Bank of America, 4.20%
- Citibank, 4.23%
- Amerisave, 4.33%
- DHI Mortgage Company, 4.34%
- PNC Bank, 4.35%
- Home Point Financial, 4.35%
- Navy Federal Credit Union*, 4.38%
What are current 5-year ARM rates?
| Product | Interest rate | APR |
|---|---|---|
| 5-year ARM | 7.089% | 7.873% |
| 3-year ARM | 6.125% | 7.204% |
| 30-year fixed-rate FHA | 5.720% | 6.501% |
| 30-year fixed-rate VA | 5.716% | 6.084% |
| Product | Interest rate | APR |
|---|---|---|
| 7-year ARM | 7.114% | 7.707% |
| 5-year ARM | 7.080% | 7.859% |
| 3-year ARM | 6.125% | 7.204% |
| 30-year fixed-rate FHA | 5.847% | 6.636% |
A 5/1 adjustable-rate mortgage (ARM) loan may be worth considering if you're looking for a low monthly payment and don't plan to stay in your home long. Rates on 5/1 ARMs are typically lower than 30-year fixed-rate mortgages for those first five years.
A 3-year ARM is an adjustable-rate mortgage with an interest rate that stays the same for the first three years. After three years are up, the interest rate can change periodically with the broader market.
A 5/1 ARM is a type of adjustable rate mortgage loan (ARM) with a fixed interest rate for the first 5 years. Afterward, the 5/1 ARM switches to an adjustable interest rate for the remainder of its term. The words “variable” and “adjustable” are often used interchangeably.
Is an ARM a good idea in 2024? You may be anxious to get any discount you can from prevailing higher mortgage rates. An ARM may offer that, but to make an informed decision, shop multiple providers for loan offers and ask each lender: How long is my initial interest rate and payment guaranteed to stay the same?
Monthly payments might increase: The biggest disadvantage of an ARM is the likelihood of your rate going up. If rates have risen since you took out the loan, your payments will increase when the loan resets.
Let's look at an example: The most common adjustable-rate mortgage is a 5/1 ARM. This means you will have an initial period of five years (the “5”), during which the interest rate doesn't change. After that time, you can expect your ARM to adjust once a year (the “1”).
A 7/1 ARM is a good option if you intend to live in your new house for less than seven years or plan to refinance your home within the same timeframe. An ARM tends to have lower initial rates than a fixed-rate loan, so you can take advantage of the lower payment for the introductory period.
Most lenders require the borrower to purchase PMI unless they're able to make a down payment of 20%. Most of our Adjustable-Rate Mortgages don't require PMI, which saves you money each month.
Why did my mortgage go up if I have a fixed-rate?
The benefit of a fixed-rate mortgage is that your interest rate stays consistent. But your monthly mortgage bill can still change — in fact, it generally fluctuates at least a little bit every year. Rising home values and insurance premiums have caused unusually dramatic increases for some homeowners in recent years.
Using an ARM may also make sense if you're looking for a starter home and may not be able to afford a fixed-rate mortgage. Historically, says McCauley, most first- and second-time homebuyers only stay in a home an average of five years, so ARMs are often a safe bet.
How it works: When you finance with our 3/3 Right Time ARM, your rate will stay the same for the first three years. After the third year, your rate may be subject to change every three years for the life of the loan.
You can refinance an adjustable-rate mortgage (ARM) just like you could with any other type of mortgage. The option to refinance could make an ARM appealing if you're looking to buy a home and want to start with the lower rate—and monthly payment—that ARMs can offer, but you're worried about future rate increases.
The current Bank of America, N.A. prime rate is 8.50% (rate effective as of February 13, 2024).
