Key takeaways

  • ARM loan requirements vary by the type of loan you get — whether conventional or government-backed — as well as the lender.
  • You'll need to meet credit score, debt-to-income ratio and down payment requirements to qualify for an ARM home loan.
  • An ARM could be worth it if you plan to live in your new home for only five to 10 years or, in other words, plan to move before the fixed-rate intro period ends.

An adjustable-rate mortgage (ARM) is a home loan whose interest rate changes periodically after a set intro period. In contrast, a fixed-rate mortgage has an interest rate that stays the same over the loan’s term. After the fixed intro period, ARMs’ interest rates change either every six months or each year, depending on the loan specifics. Here’s what you need to know about ARM loan requirements if you’re considering getting this loan type in 2024.

Many mortgage lenders rely on the Secured Overnight Financing Rate (SOFR) to determine the adjustments for ARMs. The yield on the one-year Treasury bill and the 11th District cost of funds index (COFI) are other common benchmarks.

ARM loan requirements of 2024

ARM requirements are similar to those for fixed-rate mortgages. However, qualifying for an ARM home loan can be more difficult because you’ll need enough income in case interest rates climb. As with any other mortgage, you’ll need to prove your employment and income as part of the application. That means providing paperwork such as pay stubs, tax returns, W-2s and any documents about other income, like child support.

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.

ARM debt-to-income (DTI) ratio qualifications

Generally, the DTI ratio for ARM mortgage loans can’t exceed 50 percent. Borrowers qualify for ARMs based on their ability to cover a higher monthly payment, not the initial lower payment. Lenders want to be sure you have enough income to make your payment if the interest rate goes up. So, if you have many other monthly obligations and a lower income, you might not qualify.

ARM down payment requirements

A conventional ARM requires at least a 5 percent down payment. An FHA ARM requires at least 3.5 percent. There’s no down-payment requirement for a VA ARM.

ARM loan limits

In 2024, you can get a conforming ARM for up to $766,550 (or as much as $1,149,825 if you live in a more expensive housing market). If you need a bigger mortgage than that, some lenders offer jumbo or nonconforming loans with adjustable rates. You can get these loans in much higher amounts, but they also require a higher credit score and down payment to qualify.

Should you get an ARM (adjustable-rate mortgage)?

An ARM can be a great idea considering the initial lower interest rates, but it’s not the best fit for all homeowners. For one, you need to be comfortable with the risk that your mortgage payments could go up after the initial fixed-rate period is over. It’s important to calculate how much you could save during the initial period to see if it’s worth it. For those taking out a jumbo loan, for example, an ARM may be worth it, since even a fraction of a percent of savings can add up to a significant amount.

Or, an ARM may make sense if you only plan on living in the home you’re buying for around five to 10 years. That way, if you sell the home before the fixed period ends, you don’t necessarily have to worry about rates going up for that particular mortgage. Similarly, if you expect interest rates to drop before your rate adjusts, you could refinance to a lower fixed rate.

Frequently asked questions on ARM loans

  • ARMs work by offering a lower, fixed interest rate for an introductory period. After that period is over, the rate changes once or twice per year for the remainder of the loan. The variable rate depends on a specific market index and moves up and down with that index. Adjustable-rate mortgages are also capped at how much they can adjust.
  • The largest benefit of an ARM is that it offers a lower fixed interest rate during its introductory period (typically between five and 10 years). If you think you’ll move before that period ends, you can take advantage of the lower intro rate and avoid the downside of your rate potentially adjusting up.