Adjustable rate mortgage (ARM) requirements in 2025

An adjustable-rate mortgage (ARM) is a home loan whose interest rate changes periodically after a set introductory period. These changes can occur every six months or each year, depending on the loan terms. In contrast, a fixed-rate mortgage has an interest rate that stays the same over the loan’s term.

Here’s what you need to know about ARM loan requirements if you’re considering this type of mortgage in 2025.

ARM loan requirements of 2025

Qualifying for an adjustable-rate mortgage can be more difficult because you’ll need enough income to make higher monthly payments if interest rates climb. But in other respects, qualifying for an ARM is similar to qualifying for any other mortgage. You’ll need to provide information about your employment and income through paperwork such as pay stubs, tax returns, W-2s and other income documentation — for example, proof of 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, or 500 if you’re prepared to make a 10% down payment. 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 conventional ARM mortgage loans can’t exceed 45 percent, though some lenders may approve borrowers with more debt who also have substantial cash reserves. Most FHA loans go to borrowers with DTI ratios of 43 percent or less, while the VA prefers borrowers with a ratio of 41 percent or less. In all cases, the lower the better when it comes to DTI ratios.

Remember that borrowers qualify for ARMs based on their ability to cover a higher monthly payment, not the initial, lower payment.

ARM down payment requirements

Many lenders require at least a 5 percent down payment on conventional ARMs. An FHA ARM requires at least 3.5 percent. There’s no down-payment requirement for most VA ARMs.

ARM loan limits

In 2025, you can get a conforming ARM for up to $806,500 (or as much as $1,209,750 if you live in a more expensive housing market). If you need a larger mortgage, some lenders offer jumbo or nonconforming loans with adjustable rates. These loans also generally require a higher credit score and down payment.

Should you get an adjustable-rate mortgage?

An ARM can be worth considering if you’re able to get a lower initial interest rate than you would with a fixed-rate loan, and:

• You will save money longer term: It’s important to calculate how much you could save during the initial period of an ARM. For those taking out a jumbo loan, for example, an ARM can be the smart choice, since even a slightly lower interest rate can translate to a lot of money. This may offset the cost if you plan to refinance to a fixed-rate loan later.
• You plan on living in your home for just five to 10 years: An ARM often makes the most sense if you only plan on living in the home you’re buying for around five to 10 years — before the loan’s interest rate resets.
• You expect rates to drop in the future: You’re betting that interest rates will trend down, so that even when your ARM starts fluctuating, your payments won’t increase (and could even shrink).

FAQ

• How does an ARM work?
  

  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 that the lender uses as a benchmark for its ARMs, moving up and down with that index. Adjustable-rate mortgages are limited in how much they can adjust the rate each time and over the loan’s lifetime.

• What are the benefits of an ARM loan?
  

  The largest benefit of an ARM is that it typically offers a lower, fixed interest rate during its introductory period, usually between five and 10 years. If you think you’ll move before that period ends, you can take advantage of the lower intro rate. If you don’t move and keep the ARM, you’ll be able to benefit from interest rate declines — unlike a fixed-rate mortgage-holder.

• What are the disadvantages of an ARM loan?
  

  Many ARMs require a higher down payment than their fixed-rate counterparts, and they can have stricter qualifications. But more significantly, the rate associated with your loan may increase, which will cause your monthly mortgage payments to go up. While there is a cap on the rate increases associated with your mortgage, higher payments can still cut into your budget.

Additional reporting by Mia Taylor