PenFed Mortgage Review: Financial Incentives and Low Rates

You don't have to work at the Pentagon to join the Pentagon Federal Credit Union (otherwise known as PenFed). Membership used to be limited to certain government employees, but now anyone can become a member. And once you join, you get access to PenFed Mortgage's low lending rates and higher than average savings rates. For mortgage shoppers, one potential downside is the variety of home loan options is more limited here than it might be elsewhere. Read our full PenFed Mortgage review to find out if this is the best mortgage lender for you.

This mortgage lender is a good fit for: Qualified borrowers shopping for a low-price loan and lender credits.

Top perks

Cash offer equivalent

PenFed Mortgage offers a mortgage program called the Power Buyer loan. It's a fully underwritten pre-approval that results in a 60-day commitment to lend, provided none of your details materially change prior to closing. The Power Buyer loan comes with a 60-day rate lock. The rate lock can be extended for an additional 30 days for a fee.

Low down payment home loan options

PenFed Mortgage offers several ways to get a mortgage with a low or no down payment. Those who qualify for a VA loan do not need to make a down payment at all. Low- and moderate-income borrowers can get a mortgage with 3% down. Other borrowers can get a mortgage with 3.5%-5% down.

VA loan experts

PenFed Mortgage has decades of experience serving the global military community.

Membership benefits

As a member of PenFed Credit Union, you will be able to take advantage of all the benefits it offers. Here are just a few examples:

• Car-buying service with free Carfax and TrueCar reports
• Car insurance discounts
• Car rental discounts
• Auto repair discounts
• Tax preparation software discounts
• Home insurance discounts
• Cellphone service discounts

Rate quote tool and very low rates

PenFed Mortgage is an industry leader when it comes to low mortgage rates. If you are willing to enter your email address, you can use PenFed Mortgage's convenient rate tool to find out what rate you might qualify for based on the information you provide. You can use this tool to play around with your credit score and down payment amount to see how those details might affect your eligibility. That can help you decide whether it's worth it to wait a few months while you try to improve those numbers before you apply.

The rate quote page will give you a lot of helpful information about how the payment changes, depending on whether you opt to pay for mortgage discount points or ask for a lender credit. Paying for points gets you a permanent discount on your mortgage interest rate. Asking for a credit raises your interest rate, but could cover all or part of your out-of-pocket costs.

Rate lock

PenFed Mortgage's pre-approval comes with a 60-day rate lock. If you need more time, you can extend the rate lock for 30 days one time (for a fee).

Financial incentives

For borrowers getting a loan to purchase a home, PenFed Mortgage offers $1,000-$1,500, depending on the loan size, in lender credits. You need to use PenFed Mortgage's real estate agent to qualify. Not all loans are eligible, so be sure to ask about this before you apply.

What could be improved

Members only

You have to be a PenFed Credit Union member to get a mortgage there. That means you'll have to at least maintain a savings account with the credit union. That might be inconvenient if you weren't looking to open a new bank account. On the plus side, however, the minimum opening balance is just $5, and there is no monthly maintenance fee.

No free float down

PenFed Mortgage's rate lock does not float down. If rates fall before you close on your loan, you will need to pay a fee to get the lower rate.

Higher minimum credit score required on some loans

PenFed Mortgage wants FHA loan applicants to have a 620 credit score, while other lenders allow a 580. Similarly, you need to have a 650 credit score for a conventional loan, while the cutoff for many other lenders is 620.

PenFed Mortgage makes loans in all 50 states, but you must be a member to apply. To become a member, you will need to open a savings account. The minimum opening deposit is $5.

For a conventional mortgage, you'll need a 650 credit score. For an FHA loan, or VA loan, you'll need a 620 or higher. (VA loans also require a Certificate of Eligibility from the U.S. Department of Veterans Affairs.) For the lowest advertised rate, you'll need a 760 or higher credit score.

To qualify for a PenFed Mortgage, unless you're applying for a VA loan, your debt-to-income ratio should be below 50%. That's the percentage of your pre-tax income that goes to required debt payments each month, including your proposed new housing payment. The debt figure includes the minimum payments on all loans and credit cards, as well as child support and alimony. The housing payment figure includes the mortgage (principal and interest), plus your homeowners insurance premium, property taxes, and any homeowners association dues or fees you'll be required to pay. Even if you have no other debt, there is a limit to how much your housing payment can be on its own (usually 28%-31%).

The down payment you need will depend on the loan you want. All or part of your down payment can be made with money you receive as a gift or through a down payment assistance program.

• VA loan: 0% (for service members, veterans, and a few other qualifying borrowers)
• HomeReady loan: 3% (this loan is for low- and moderate-income borrowers)
• Conventional loan: 5%

PenFed Mortgage's refinance rates are among the lowest you will find. When we checked, the refinance rate was lower than the national average and the same as the purchase loan rate. (Some mortgage lenders charge more for refinance loans.) There was no difference in rates for a cash-out refinance or a rate-and-term refinance when all other variables were the same.

PenFed Mortgage's rates trend lower than the national average, even without the purchase of mortgage discount points. We love that PenFed Mortgage's rate tool also gives detailed information about even lower rates available to borrowers who are willing to buy points. Points are prepaid interest. If you are going to own the property for at least several years, you could save money by buying points. You pay an upfront cost, and in exchange, the lender permanently reduces the mortgage rate on your loan.

You're a first-time home buyer. PenFed Mortgage offers special conventional loans to meet the needs of first-time home buyers, including low down payment options.

You're a well-qualified borrower who can shop around on rates. PenFed Mortgage's interest rates are about as low as we've seen.

You want a lender credit. Qualified applicants who use a PenFed Mortgage affiliated real estate agent may qualify for PenFed Mortgage's credit of $1,000 to $1,500.