FHA mortgage loans come with both fixed- and adjustable-rate options. While fixed is easily the most common, there are situations when an adjustable-rate FHA loan may be best.
If you’re only staying in your home for a short amount of time, for example, an ARM may be the better choice — and could save you money. It also might be smart if you expect interest rates to drop soon.
FHA ARM loans are unique in that they have rates that fluctuate over time. They also tend to have lower rates than fixed loans — at least at the beginning of the loan’s term. Are they right for your exact situation, though? Here’s what you need to know to decide.
In a nutshell:
FHA adjustable-rate loans, also called ARMs, come with variable interest rates that can change over time. Borrowers get a set interest rate for the first one, three, five, seven, or 10 years of the loan, and then the interest rate rises or falls once annually after that. These loans can be smart for short-term homeowners or those who expect future income increases down the line.
How an FHA ARM Works
An FHA ARM loan is a government-backed mortgage with an adjustable interest rate—meaning the rate adjusts periodically over time. These loans have a fixed interest rate for the first one, three, five, seven, or ten years, and then the rate goes up or down annually after that.
While your rate can rise on an FHA ARM, the FHA does set rate caps to keep it from rising too much. For instance, on one- and three-year ARM options, your rate can only increase by one percentage point every year and five points over the entire loan term.
The FHA also backs these loans, which means they’ll repay the lender a portion of what you owe them if you default on your loan. This lessens the risk for your lender and allows them to offer lower interest rates than they otherwise could.
Types of FHA ARM Loans
The FHA offers four distinct ARM loan options: 3/1, 5/1, 7/1, and 10/1 ARMs.
The first digit — the “3” in “3/1,” for example — indicates the number of years your initial interest rate is locked in. The second digit (the “1”) shows how often the rate adjusts after that fixed-rate period ends. In this case, it’ll adjust once every year after the initial period.
With that in mind, here’s how these loan options break down:
| FHA ARM Types | Fixed Period | Rate Adjustment |
|---|---|---|
| 3/1 | First 3 years | Adjusts once every year after fixed period |
| 5/1 | First 5 years | Adjusts once every year after fixed period |
| 7/1 | First 7 years | Adjusts once every year after fixed period |
| 10/1 | First 10 years | Adjusts once every year after fixed period |
Keep in mind that you can always refinance before your fixed-rate period ends, which would help you steer clear of any potential rate increases along the way. (Though you would have to pay closing costs again and start your loan term over).
FHA ARM Rates
ARM rates tend to be lower than the rates offered on fixed-rate loans, at least at the beginning of the loan’s term. And FHA loan rates tend to be lower than conventional loan rates as a general rule.
You will also usually get a lower rate for a shorter fixed period than a longer one. (So, a 3/1 ARM will likely have a lower initial interest rate than a 10/1 will, as it locks in that rate for a shorter amount of time and leaves more room for adjustments.)
Just remember: Rates are highly personalized. Not only can market conditions impact your interest rate, but individual choices and financial factors play a role, too. The term, loan amount, and lender you use will influence your rate heavily, as will your credit score, debt-to-income ratio, and other details. Generally speaking, the higher the risk you present to a lender (meaning you’re more likely to skip payments), the higher the rate you’ll get. Conversely, lower-risk borrowers get lower interest rates.
Pros and Cons of FHA ARMs
There are some big benefits to using an FHA ARM loan to buy a house.
For one, you’ll typically get a lower interest rate upfront, which can reduce your monthly payment, free up cash flow, and save you thousands over that initial period of time. This can also help expand your buying budget and make it easier for first-time homebuyers to get in on the market. (Plus, the FHA’s annual and lifetime rate caps help protect you from any too-large jumps in payments.)
On the downside, though, ARMs come with some risk. If you’re still in the home when the rate starts adjusting, you could see your interest rate jump as much as two percentage points annually, depending on your loan term, which could make household budgeting — or even making your payment at all — a challenge. Ultimately, this could put you at higher risk of foreclosure, too.
| Pros | Cons |
|---|---|
| Lower initial interest rate | Your rate could increase up to two percentage points annually once the fixed-rate period ends |
| Lower initial monthly payment | Your monthly payment could increase, too |
| More cash flow in the initial rate period | It could be hard to make payments |
| Interest savings in the initial rate period | You might risk foreclosure if you can’t repay your loan |
| Annual and lifetime rate caps to protect you | Household budgeting could become a challenge |
FHA ARM Loan Requirements
To qualify for an FHA ARM loan — or any FHA loan, for that matter — you’ll need to meet some specific requirements.
These include:
Credit score: FHA requires at least a 500 to 580 credit score, depending on your down payment amount. However, most lenders require at least a 620.
Down payment. The FHA requires a 10% down payment if your credit score is 500 to 579 or a 3.5% down payment if it’s 580 or higher.
Debt-to-income ratio (DTI): Lenders usually prefer a DTI of 43% or lower, but this requirement is usually pretty flexible.
Loan amount: You can only borrow up to the FHA loan limit for your area. In 2025, the FHA loan limit for most areas is $524,225.
There aren’t any ARM-specific requirements you’ll need to meet, though they can be harder to qualify for, as they’re a bit riskier than fixed-rate loans. Individual lenders can also set requirements higher than the FHA’s minimums if they see fit.
You can see our complete 2025 guide for FHA loan requirements here.
How to Refinance an FHA ARM
If you get an FHA ARM, you may want to refinance the loan before your initial interest rate expires — so one, three, five, or 10 years into the loan. At this point, you could refinance into a new FHA ARM or an FHA fixed-rate loan, which would give you the same rate and payment for the entire loan term.
To refinance your FHA ARM, you’d need to:
Fill out a new loan application (you can use any lender), and submit the required documentation. You will typically need to agree to a credit check, too.
Have the home appraised. Your lender will order this to assess your home’s current market value.
Pay your closing costs, and sign your final closing papers.
Use the new loan proceeds to pay off your old balance. You’ll then make payments only toward the new loan moving forward.
Refinancing your ARM could also help you remove the FHA mortgage insurance premium (MIP) if you opt to refinance into a conventional loan instead of an FHA one. This can also reduce your monthly payment.
Is an FHA adjustable rate mortgage a good idea?
An FHA adjustable-rate mortgage can be a good idea for some homebuyers, but not all. For example. If you’re only planning to live in the home for a few years — before the initial rate can expire — then an FHA ARM can be a great way to save money while you’re there.
It may also be smart if you know your income will increase by the time your rate can adjust or if you’re confident that rates will move downward by that point.
ARMs aren’t a great idea if you need a stable monthly payment you can rely on, though, and they’re also not wise in a rising-rate environment. If you have inconsistent income or aren’t confident in your future earnings/employment, they can also be quite risky to take on.
Always talk to a loan officer if you’re considering an ARM. They can run the numbers and help you consider all the pros and cons of these loans before moving forward.
With over 11 years in the mortgage industry, Matt Roy has spent the last 7 years as an underwriter. He’s passionate about understanding the “why” behind lending decisions and helping homebuyers succeed.
