first time homeowners ARM loan

First Time Home Buyer

Is an ARM Loan a Good Idea for First-Time Homeowners?

Buying your very first home is one of life’s most exciting experiences. As you search for the perfect place to call your own, one of the biggest decisions you’ll face is choosing the mortgage type that best fits your needs. Adjustable-rate mortgages (ARMs) may seem very appealing at first glance due to their lower initial interest rates. But are ARMs really a smart choice for first-time homeowners? Let’s take a closer look at the pros and cons.


How Do ARMs Work?

ARM loans differ from fixed-rate mortgages in that their interest rates fluctuate periodically based on market conditions. Specific features of an ARM such as the initial rate, adjustment intervals, and rate caps can vary. The main advantage of an ARM is having a lower monthly payment, especially for the first few years. This helps borrowers who might not be able to afford the higher rates of a fixed mortgage. ARMs can also benefit homebuyers who only plan to keep the home for a few years.


Risks for First-Time Homeowners to Consider

However, ARM loans also carry some distinct risks that must be considered. Your interest rate and monthly payment amount can change whenever the loan adjusts per the terms. This “payment shock” could make it difficult to predict your future housing budget needs. Additionally, over the full course of the loan, an ARM could end up costing more than a fixed-rate mortgage depending on changes in the market and rate fluctuations.


Know the Qualifications

To qualify for an ARM loan, you need a strong overall financial profile. Lenders look for good credit, a stable income history, and healthy debt-to-income ratios. 


Compare All of Your Loan Options 

Before settling on an ARM loan, it’s important to be aware of all your options and the pros and cons of each. Fixed-rate mortgages provide the security of consistent rates and payments month-to-month. Government-backed loan programs like FHA, VA, and USDA may offer better terms for certain homebuyers. You’ll want to do your research and discuss your options with your lender in detail to find the one that makes the most sense for you.


Tips for Managing an ARM

If you do opt for an adjustable-rate mortgage, be sure to budget for the maximum potential rate, understand your caps, and have a refinancing contingency mapped out in advance. Staying informed on economic trends can help you anticipate rate changes.


Chat with a Mortgage Expert

The choice between an adjustable or fixed mortgage depends on your unique home-buying needs and financial goals. For some first-time homebuyers, the stability of fixed payments makes the most sense for the long haul. For others who aren’t planning to live in their home long or have other unique circumstances, an ARM loan can be a great option. Connect with our team of mortgage experts to review your options in detail. We’re here to guide you and help you find the right loan option for your needs. Reach out today to start the conversation!