Learn About Adjustable-Rate Mortgages
Are you in the market for a new home but aren't sure what type of mortgage loan to choose? Have you considered an Adjustable-Rate Mortgage (ARM)? At David Licciardi - Main Street Home Loans, we strongly recommend this type of loan to those who are looking to maximize their buying power in today's market.
What is an Adjustable-Rate Mortgage loan?
An ARM is a mortgage loan that features an interest rate that may change periodically based on several factors. These types of loans offer a lower initial interest rate than a fixed-rate mortgage which can lead to lower monthly payments, and therefore more buying power.
Who qualifies for an Adjustable-Rate Mortgage?
These loans are ideal for individuals who plan to live in their homes for a short period of time as the initial lower interest rate is fixed for a set period. To qualify for an ARM, you generally need the following:
- Have a minimum 3% - 5% down payment
- A minimum qualifying FICO® Score of 580 - 620, and a debt-to-income ratio (DTI) of no more than 50%.
- It may also require that you have an established credit history and/or a FICO Score of 660+ and a down payment of at least 10%.
What are the benefits of an Adjustable-Rate Mortgage?
The lower initial interest rate can lead to lower monthly payments, which is ideal for those who are looking to save money on their monthly expenses. Additionally, an ARM can be a great option for those who are not planning to stay in their home for the long-term. This means they can take advantage of the initial lower interest rate for the period in the home.
Adjustable-rate loans typically have a rate adjustment cap that limits how much the interest rate can adjust in any given year, helping to avoid any unexpected surprises.
How often can my interest rate change with an Adjustable Rate Mortgage?
Your interest rate change will depend on the specific terms of your loan. Some loans may adjust just once per year, while others may adjust as often as once per month. The most common adjustment period is typically every six months.
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Frequently Asked Questions
What are the different types of mortgage loans available?
Common types include conventional loans, FHA loans, VA loans, USDA loans, fixed-rate mortgages, and adjustable-rate mortgages. Each type has its own eligibility requirements, benefits, and drawbacks.
What is the difference between a fixed-rate and adjustable-rate mortgage?
A fixed-rate mortgage has a constant interest rate throughout the loan term, leading to predictable monthly payments. An adjustable-rate mortgage (ARM) has an interest rate that can change periodically, causing fluctuations in monthly payments.
What is the difference between pre-qualification and pre-approval for a mortgage loan?
Pre-qualification provides an estimate of how much you might be able to borrow based on the information you provide. Pre-approval involves a more thorough review of your financial situation and credit history, resulting in a conditional commitment from a lender.
Can I get a mortgage loan with bad credit?
While it may be more challenging to qualify for a mortgage loan with bad credit, there are still options available. Government-backed loans like FHA loans may have more flexible credit requirements, and some lenders specialize in working with borrowers with less-than-perfect credit.
At David Licciardi - Main Street Home Loans, we can help find the perfect ARM for you and your specific needs. Contact us today!
