PennyMac Mortgages: How Do They Work?

FT Contributor
A mortgage agent speaking to a smiling family.

PennyMac Financial Services has been a publicly traded company since 2013. Its mortgage wing, PennyMac Loan Services, started operations in 2008.

PennyMac has a wide range of mortgage products. It has several large call centers, and it specializes in offering mortgages and providing customer support over the phone and through its online mortgage access center (“m.a.c”).

PennyMac is one of the largest mortgage companies in the country. It claims to have serviced more than $384 billion in mortgage loans and has worked with over 1.8 million home buyers since it began operations.

In addition to standard 15- and 30-year fixed-rate loans, PennyMac originates adjustable-rate mortgages and offers FHA, VA, and USDA loans.

Homeowners can also use the service to refinance their mortgage or use their property to get equity to secure a personal loan.

Table of Contents

PennyMac Mortgage Process

Customers can start the mortgage application process online or by calling PennyMac and speaking with a lending specialist. You’re also able to provide information about your loan needs and request that a mortgage specialist call you. PennyMac does not have brick-and-mortar locations, so most customers go through the entire application process remotely.

According to PennyMac, the entire process takes between 45 and 60 days, though using the online mortgage access center might speed up the process.

After submitting your documents and providing the necessary information, you may get pre-approved. A loan officer will contact you to confirm the information and offer options.

Once you have pre-approval, you can begin the actual application process and go through loan processing, which involves things such as getting an appraisal on the home and collecting necessary legal documents.

PennyMac Mortgage Rates

PennyMac’s conventional home loans come with low rates. As of this writing, a 15-year mortgage has an interest rate of 2.5%, while 20- and 30-year mortgages have a 3% rate for qualified borrowers. According to the lending insurance firm FreddieMac, these interest rates are about average.

If you have less money to put towards a down payment, you may need an FHA loan, which includes mortgage insurance. With mortgage insurance, you can get a low interest rate, but you will have a slightly higher annual percentage rate (APR) because of mortgage insurance fees.

PennyMac also has special programs available to military members (VA-backed mortgages) and rural residents (USDA mortgages). These mortgages have low interest rates and may not require down payments or mortgage insurance.

Interest rates may vary depending on where the home is located and what your credit score is. If local prices are high, interest rates may be lower.

PennyMac Mortgage Options

PennyMac offers access to a variety of mortgage options.

  • Conventional mortgages are available in 15-, 20-, and 30-year terms. You need good credit to get these mortgages, and you have to make a larger down payment.
  • FHA loans are for homebuyers who may not otherwise qualify for a mortgage. These loans are insured, so you do not need to make a larger down payment.
  • VA loans are available to current and former military personnel. The VA guarantees the loan, allowing lenders to accept applicants who would not otherwise qualify for a mortgage.
  • USDA mortgages are loans for low-income homebuyers in rural areas who would not otherwise qualify for a mortgage. There are income maximums that limit who can participate in this program.
  • Investment property loans from PennyMac are specifically for people or organizations purchasing properties to resell or rent for profit.
  • First-time homebuyers can get conventional or FHA loans depending on their financial situation. PennyMac offers guidance to first-time buyers to help them gauge their home-buying readiness.

PennyMac Loan Services

PennyMac has specific requirements that applicants need to meet when they apply for a mortgage. For most loans, applicants need a FICO credit score of 620 or above and a debt-to-income ratio of less than 50% (less than 45% is preferred).

During the pre-approval process, you need to submit tax documents, evidence of income, and materials that show any other loans you currently have.

Each type of mortgage has additional requirements and terms to understand.

Conventional Loans

Conventional loans are generally a lower-cost option. If you can make a downpayment of 20%, you do not have to pay for mortgage insurance. However, you can obtain a conventional loan with a rate as low as 3%.

It is also possible to purchase your home with an FHA loan and then refinance to a conventional mortgage later to get a lower rate.

Rates for conventional loans are fixed and depend on the term of the loan. Fifteen-year mortgages have higher monthly payments but come with a lower interest rate. Twenty and 30-year mortgages have a higher interest rate than a 15-year mortgage. Monthly payments could be higher if you need mortgage insurance.

Conventional loans are best for people who can make a larger down payment.

FHA Loans

FHA loans are for people who cannot make a sizable down payment. You only need to make a 3.5% down payment to qualify for this type of mortgage. The Federal Housing Administration does not originate the mortgage, but it provides insurance that allows PennyMac to assume less risk when approving people who would not otherwise qualify.

FHA loans are only for homes that you will use as your primary residence. Monthly payments are typically a little bit higher than conventional mortgages because of the mortgage insurance premiums.

VA Loans

VA loans are for homebuyers who are current or former military members. These mortgages have advantageous terms. Applicants do not have to make down payments, and they can avoid mortgage insurance as well. Without mortgage insurance, monthly payments may be lower than with other types of mortgages, such as FHA-insured mortgages.

The catch, of course, is that this program is only available to military members. To qualify and proceed with an application, applicants need to have over six months of peacetime active-duty service, three months or wartime active-duty service, or six years of National Guard or Reserve service. Spouses of service members who died while on active duty may also qualify.

USDA Loans

USDA loans are for people who live in rural areas designated by the US Department of Agriculture. These mortgages are also available for refinancing. Applicants do not need to meet FICO credit score or debt-to-income ratio requirements, nor do they need to have the property appraised.

Investment Property Loans

Investment property mortgages have different terms, depending on the type of property. Investors need to make a 15% down payment on a single family home and a 25% down payment on multi-unit properties.

Investment mortgage applicants still need to provide proof of income and other supporting documents when applying for the mortgage. They must also meet credit score requirements (good or excellent on the FICO scale) and have a debt-to-income ratio below 50%.

If you are a property investor and can make a sizable down payment, then these mortgages are the best option.

First-Time Homebuyers

PennyMac offers its FHA, conventional, and VA loan options to first-time homebuyers. They also provide a first-time home buyer guide to help those purchasing their first property prepare for the process, add the costs, and decide how large of a loan they need.

Novice homebuyers can also find out options for purchasing a home with poor credit.

How to Apply for a PennyMac Home Loan

People interested in getting a mortgage or refinancing an existing home loan can visit the PennyMac website and use its mortgage calculators and home value estimator tools to determine the value of a property and calculate mortgage amounts, down payment requirements and monthly payments.

When applying for a mortgage with PennyMac, you first make an account on the website. After providing personal information, you can submit supporting documentation, such as bank statements, tax documents, information about other debts, and pay stubs, through the online portal.

You can also call and have a loan specialist fill in the information for you, but you will still have to upload or mail your supporting documents.

After this initial application, called pre-approval, a loan officer calls each applicant to confirm the information and provide insight into which mortgage products will be a good fit.

Another specialist takes over the process of each applicant who remains interested in using PennyMac and wants to proceed with the application process. This representative will be each customer’s primary point of contact for the remainder of the process.

Once you get ready to purchase a home, you need to wait for the appraisal before the mortgage process is completed.

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