Is an FHA ARM Right for You?

At Quicken Loans, we’ve got plenty of great home loan options to choose from. Of course, there are the 30- and 15-year fixed loans, as well as VA and jumbo loan options. Did you know we also offer 5-year FHA adjustable-rate mortgages (ARMs), too? That’s right. If you’re unfamiliar with FHA ARMs, don’t worry. We’ll tackle everything you need to know so you can determine if an FHA ARM is right for you.

What Is a 5-Year FHA ARM Loan?

An FHA ARM is a home loan with an initial fixed interest rate that changes after a specified period of time based on current market conditions. The difference between an FHA ARM and a fixed-rate FHA loan is that the interest rate on a fixed-rate FHA loan will remain the same throughout the life of the loan.

With a 5-year FHA ARM, you’ll get the lowest mortgage rate we offer and save thousands over a traditional fixed-rate mortgage during the initial fixed-rate period (five years). Once the fixed-rate period ends, your rate can change once per year. Depending on market conditions, the change in rate could be up or down. Either way, you’re protected because rate changes are capped at 5%, and it can’t rise more than 2% per year. For example, let’s say your initial rate is 3.375%. The highest your rate can jump to is 8.375%.

With a 5-year FHA ARM: 

• You can refinance up to 97.75% of your primary home’s value
• A primary home can be purchased with as little as 3.5% down
• Credit scores as low as 580 may qualify

Whether you’re interested in purchasing a home or refinancing a current mortgage, an FHA ARM has many benefits. Like most things in life, there are two sides to every story, though. An FHA ARM may not be right for everyone.

Three Questions to Consider

If you answer “Yes” to any of the following questions, you may want to consider an FHA ARM. Do you want to reduce the cost of your mortgage? Do you plan to relocate or refinance in the next five years? Do you want the lowest mortgage rate available? If so, an FHA ARM may be right for you.

Five-Year Plan?

Since you’ll start with the lowest mortgage rate we offer during the fixed-rate period, the question of do you plan to relocate or refinance in the next five years becomes key. As we talked about, once the fixed-rate period ends, your rate may jump as much as 5%. However, if you plan to move or refinance again, you won’t have to worry about the potential 5% rate jump because you’ll be getting into a new mortgage. This also gives you the option of a higher loan amount without paying the cost of a longer fixed-rate period. In other words, the amount saved from the lower payment during the fixed period is greater than the cost of refinancing if you choose to go that route.

So, what do you think? Does an FHA ARM seem like a home loan option that could benefit you? If so, check out Rocket Mortgage to get started today, or leave us a comment below and we’ll reach out to you!

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