FHA 5/1 ARM Mortgage Loan

The FHA 5/1 ARM is an Adjustable-Rate Mortgage backed by the Federal Housing Administration. It offers a fixed interest rate for the first five years, after which the rate adjusts annually. To better understand how this loan can fit into your homeownership plans, you can start by speaking to one of our seasoned experts.

• Interest rates depend on the Secured Overnight Financing Rate (SOFR) index
• Lender adds a margin to compute new rates after the fixed-rate period
• Rate adjustments have annual and lifetime caps
• Interest rate can increase by 1% annually and 5% over the life of the loan, or 2% annually and 6% over the life of the loan

• Occupancy: Only applicable to primary residences
• Borrowing Limits (2024): $498,257 for one-unit properties, up to $1,149,825 in high-cost areas
• Credit Score: Minimum 500 (higher down payment) or 580 (lower down payment)
• Down Payment: 3.5% for credit scores 580+, 10% for scores 500-579
• DTI: Generally 43%, some lenders may allow up to 50%
• Employment Verification: Steady employment for the last two years
• Mortgage Insurance: 1.75% of total loan amount at closing

• Refinancing: Lower initial rate for 5 years before potentially converting to a fixed-rate mortgage
• Short-Term Homeowners: Those planning to sell before the fixed-rate period ends
• Financial Growth Expectations: Borrowers anticipating higher income within five years

Understanding the advantages and disadvantages of an FHA 5/1 ARM loan can help you make an informed decision.

• Lower initial interest rate compared to fixed-rate loans
• Rate caps protect against dramatic payment increases
• Flexibility to sell or refinance before rate adjustments
• More lenient credit requirements than conventional loans

• Potential rate increases after the initial fixed period
• Complex loan structure with various components
• Risk of unaffordable payments if rates rise significantly
• Limited to primary residences only
• Requires mortgage insurance premiums