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MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

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JUMBO LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. Is a Jumbo ARM Right For You?

Mortgage

Is a Jumbo ARM Right For You?

What you'll learn: What is a jumbo loan, how a jumbo ARM works, pros and cons, and how to qualify

EXPECTED READ TIME: 5 MINUTES

August 29, 2023

Is a Jumbo ARM Right For You?

If you have your sights set on a home in a highly competitive market or a mortgage outside of the conventional loan limits, you may turn to a jumbo loan. Jumbo loans come in various varieties including an adjustable rate mortgage (ARM) – a compelling option for many reasons. In this article, we’ll explore how jumbo ARMs work, as well as jumbo ARM benefits and drawbacks, so you can decide if this mortgage type is right for you.

What is a jumbo loan?

Fannie Mae and Freddie Mac are U.S. government-sponsored organizations that purchase loans from lenders who follow their guidelines to stabilize the U.S. mortgage market. Jumbo loans, also known as non-conforming loans, are loans that exceed the maximum price limits for Fannie Mae and Freddie Mac purchases. The single-unit residence loan limit for most of the country in 2023 is $726,200. This value can vary depending on the city and state in which your potential home resides. Areas like New York, San Francisco, and Hawaii have higher limits.

Since jumbo loans are not backed by any government entity, lenders are at a higher risk and often require a larger down payment and stricter qualification criteria. In return, homebuyers can access more funding to finance their home and may benefit from lower interest rates.

What is an ARM?

An adjustable rate mortgage (ARM) offers an initial fixed interest rate for a certain period, typically ranging from 3 to 10 years, after which the interest rate adjusts periodically based on market conditions. For example, a 10/1 ARM has a fixed rate for 10 years and then adjusts annually.

Many borrowers enjoy the low payments during the initial period and then choose to refinance or sell the property before the rate becomes variable.

How does a jumbo ARM work?

Jumbo loans come in several varieties, including adjustable rates. A jumbo ARM combines the characteristics of jumbo loans and variable rate mortgages. That includes:

  • Higher loan amount providing the opportunity to finance larger or more expensive homes
  • Stringent jumbo loan requirements including a favorable credit score, DTI, and down payment
  • Initial fixed interest rate for a specified period, followed by rate adjustments based on market conditions

Advantages of jumbo ARMs

There are several benefits of ARM loans – specifically jumbo ARMs – ranging from favorable interest rates to home affordability:

  • Lower rates – ARM rates can be 1% lower than fixed-rate mortgage rates, resulting in potential monthly savings of $500 or more based on the loan size. Interest rates for jumbo loans are often lower than conforming mortgages due to stricter requirements such as a 20% down payment, higher credit scores, and six-months' worth of cash reserves, which make the loan less risky.
  • More buying power – An ARM’s lower initial monthly payment combined with a jumbo loan can help you qualify for a higher cost home, without having to break up the loan into multiple mortgages.
  • Unique loan features – Oftentimes, the original lenders will not sell many ARMs like they will with conforming loans. As a result, these mortgages can have guidelines and prices defined by the lender, such as interest-only repayment terms.
  • Lower payments – With ARMs, borrowers can take advantage of falling rates without needing to refinance. This saves on new closing costs, and borrowers will see their rates fall automatically.
  • Flexible options – The fixed rate period of an ARM can vary, usually from 3 to 10 years, but other terms are possible. Many borrowers choose to take advantage of the low rate during the fixed period and then sell or refinance before the rate becomes variable.

Disadvantages of jumbo ARMs

Because they are non-conforming and higher in value than conventional mortgages, jumbo loan qualifications tend to be stricter than traditional options:

  • Higher credit score and down payment – Most lenders require borrowers to have a credit score of over 700 and a jumbo loan minimum down payment of 10% or more. Those with credit scores above 760-780 will get the lowest rates available, saving thousands over the life of the mortgage.
  • Lower maximum DTI – The debt-to-income ratio (DTI) is your total monthly debt obligations compared to your monthly income. To qualify for a jumbo loan, a lender will look for a DTI that’s even lower than the 45% DTI required for a conventional mortgage – likely 36% or below.
  • Higher financial reserves – Your lender will also want you to prove that you have sufficient funds coming in to pay for the loan plus reserves on hand in case of loss of income. Jumbo mortgage reserve requirements can be up to 12 months’ worth of mortgage payments.
  • Second appraisal –  Some lenders may request a second appraisal, adding time and costs to the loan process. Special jumbo loan appraisal requirements help ensure the accuracy of the property's value and minimize risk for the lender.
  • Potentially higher rates – Jumbo ARMs often offer lower rates, but some borrowers may receive higher quotes due to the increased risk for lenders. These rates can be one to two percentage points higher than conforming loans. However, refinancing a jumbo ARM is possible once the loan balance falls below the maximum conforming loan limit set by Fannie Mae and Freddie Mac.

The right choice for you

If you have good credit, a DTI of less than 36 percent, and can show consistent employment history, you may be an excellent candidate for a jumbo ARM. If you have a dream home that exceeds the conforming home limits, a jumbo loan may be exactly what you need to purchase it. For other borrowers who are close to these qualification levels, you may also qualify, but your terms may not be as favorable.

There is a need for jumbo loans, especially in today’s home buying environment, and there’s no better place to start shopping than at a credit union.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

What Is a Jumbo Loan? | PenFed Credit Union

Find out the basics of a jumbo loan. For example: How big is a jumbo mortgage? What are the pros and cons? And how do you apply for a jumbo loan? Knowing these answers is helpful.

Top 10 Benefits of a Jumbo Loan | PenFed Credit Union

There are huge advantages of getting a jumbo loan including purchasing a nicer home in a great neighborhood. Find out if a jumbo mortgage is right for you.

Couple looking over documents

How Is a Jumbo Loan Different Than a Conforming Loan? | PenFed Credit Union

Jumbo loans make luxury homes a reality. Read on and find out what a jumbo loan is, what makes a mortgage jumbo, and what the benefits of a jumbo loan are.

files and binder on a desk

Can I Afford a Jumbo Loan? | PenFed Credit Union

Discover what it takes to get a jumbo loan and whether or not it fits into your budget. A jumbo mortgage could be the best choice in today's market.

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JUMBO LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of October 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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