May 15, 2023
Do you know how to apply for an FHA adjustable rate mortgage loan or ARM?
The loan limits are the same on FHA ARMs as for fixed-rate mortgages, but your strategy for the loan should be different, as your payments are subject to change over the lifetime of the ARM loan.
It’s essential to apply for an adjustable rate loan with a purpose; if you aren’t sure why a fixed rate loan is better for some than an ARM, you aren’t ready for an ARM loan application yet.
The Consumer Financial Protection Bureau has sound advice for house hunters interested in an adjustable-rate mortgage, including knowing when you would want an ARM loan and when you would not want one.
Have A Game Plan
CFPB’s advice includes planning ahead for your loan once the adjustments start. How many rate adjustments can you handle before selling or refinancing?
The primary difference between a fixed-rate FHA mortgage and an adjustable-rate loan is that with an adjustable-rate mortgage, the interest rate will be adjusted throughout the mortgage on a schedule.
These adjustment periods are regulated and will occur over a fixed period with caps on the adjustments, a common feature of FHA Adjustable Rate Mortgages.
ARM loans may include a lower introductory rate than its fixed-rate equivalent. After that introductory
How To Apply For An FHA Adjustable Rate Mortgage
Have a plan to deal with your mortgage once the interest rates start getting adjusted; don’t ignore these adjustment periods and simply hope they don’t go too high.
You should either be
Borrowers who choose adjustable-rate mortgages often do so because they know they are not planning to stay in the home for the full term of the mortgage.
They plan to take advantage of the lower interest rates in the earliest days of the loan before refinancing or selling. That is what we mean when discussing why it’s important to have a strategy for your ARM loan.
Whatever strategy you decide works best, and it truly is the borrower’s decision at the end of the day, you should consider the following advice before choosing an ARM loan or an FHA fixed-rate mortgage:
- Learn how high the interest rates can go with an ARM loan, both per adjustment and over the lifetime of the mortgage;
- Ask the lender how often your ARM loan interest rates are scheduled to adjust;
- Ask soon after the loan closes to expect the very first interest rate change;
- Ask about interest rate caps on the ARM loan and how much the adjustments will cost you over the lifetime of the mortgage;
- Don’t assume you will be able to sell or refinance your home within a short period if you need to beat the deadline for the first or next interest rate adjustment. Have a plan on how to handle your finances if you can’t refinance or sell the home before your ARM loan interest rate adjusts again.