The Bottom Line: PenFed excels at serving military and government-affiliated borrowers, but its tech capabilities fall short.
Pros & Cons
Offers a large selection of home loan products
A special program helps borrowers of limited means buy their first home with closing cost and down payment assistance
Offers the competitive rates typical of nonprofit credit unions
Adjustable-rate loans include the unusual 15/15 ARM, in which the rate adjusts only once over the life of the 30-year loan
Charges an origination fee, which varies by loan product
Online capabilities will disappoint tech fans
Branch offices may be hard to find, or nonexistent, where you live
The PenFed mortgage department is an important component of the credit union's services to its far-flung membership. As with other credit unions, its customers are members of what amounts to a not-for-profit financial cooperative.
"Unlike a bank, whose mission is to charge more money for interest rates and pay less in dividends, we do just the opposite,” says T.V. Johnson, vice president of corporate communications. “We put that model on its head and pay more in dividends and charge less in interest."
Credit unions can do this because their profits aren’t taxed and don't feed a stock price or enrich a board of directors. Instead, they flow as dividends — and lower rates on loans of all kinds — back to members.
PenFed: A military footprint
PenFed, formerly Pentagon Federal Credit Union — and originally the War Department Credit Union — rose from modest beginnings. Now with over $20 billion in assets and 1.4 million members worldwide, it was established in 1935 by 10 investors who kicked in a total of about 40 bucks.
To apply for a mortgage you have to be a member, though gaining credit union membership is easier these days than it used to be. In fact, there are many paths to membership at PenFed, Johnson says. If you served in the military, including National Guard, reserves and active duty, or are a government employee or contractor, you’re in, easy.
Civilians who want to become a member can join an auxiliary organization, such as Voices for America's Troops and the National Military Family Association, with one-time dues of under $20. That gets you access to PenFed Mortgage, too.
While PenFed offers mortgage loans to members in all 50 states, actual brick-and-mortar locations follow a military footprint and are primarily in the Washington, D.C., area, where there are 16 offices. Other locations include 14 offices in Florida, four in Texas and at least one in Georgia, Nebraska, New York, North Carolina and Tennessee. There are also two branches in Guam, three in Hawaii, one each in Japan and Portugal, and two in Puerto Rico.
The nuts and bolts of PenFed mortgage products
PenFed has a large array of home loan products, among the widest you’ll find. There are purchase and refinance mortgages in a variety of terms, including 10- and 30-year fixed loans. PenFed has a giant selection of adjustable-rate mortgages, from 3/1 ARMs to the unusual 15/15 ARM, in which the rate adjusts only once over the life of the 30-year loan.
There are jumbo loans, which are high-balance mortgages for borrowers with an original loan amount that exceeds the conforming loan limit, and of course Veterans Affairs loans. PenFed doesn’t offer Federal Housing Administration loans but is rolling out a look-alike product in November for first-time home buyers. It will accept down payments as low as 3%, and since the loans won't be backed by the FHA, mortgage insurance premiums can be waived once the property value hits a certain target. Mortgage insurance is required for the life of FHA loans.
Minimum credit scores vary by loan product, says Craig Chapman, vice president of mortgage sales and development.
"I don't want to lock ourselves into that, because each situation is different. [However] typically, 620 seems to be where I see the bottom of that credit curve," Chapman says. “Everything is case by case. While we have guidelines, we try to make common sense decisions whenever possible."
A PenFed average mortgage size is about $270,000, and Chapman says members tend to put “at least” 20% down.
“Our refis tend to be in that 70-80% [loan to value] range as well,” he adds.
PenFed charges an origination fee, which varies by loan. However, if you use partner services like PenFed Realty or preferred title partners, PenFed waives the fee. Depending on the loan product, PenFed will pay up to $10,000 toward closing costs. Average closing costs are $4,700, excluding the origination fee. PenFed also offers free rate locks.
The online experience: ‘21st century light’
It’s not unusual for credit unions to trail banks when it comes to technology. PenFed is no exception. PenFed mortgage rates are available on its website, and there's an online application. Chapman says uploading of documents is available but paperwork e-signature is not. There's no chat help feature online, either.
He acknowledges the credit union's online capabilities are due for an upgrade.
"We're 21st [century] light," Chapman says, though he stresses the importance of "the human element" in the mortgage process. "Even though people have been through [the mortgage process] two or three times, it's still nerve-wracking for them. So we really try and hold their hands through the process.”
If you’re looking to go through the mortgage loan process online from start to finish, PenFed is not for you.
While banks are issuing a declining share of mortgages, credit unions — currently with only 6% of the market — have become a more important source of home loans. As one of the largest credit unions in the nation, PenFed Mortgage is a solid choice.
NerdWallet's star ratings for mortgage lenders are awarded based on our evaluation of the products and services that lenders offer to consumers who are actively shopping for the best mortgage. The six key areas we evaluated include the loan types and loan products offered, online capabilities, online mortgage rate information, customer service and the number of complaints filed with the Consumer Financial Protection Bureau as a percentage of loans issued. We also awarded lenders up to one bonus star for a unique program or borrower focus that set them apart from other lenders. To ensure consistency, our ratings are reviewed by multiple people on the NerdWallet Mortgages team.