Here are the guidelines you likely need to meet to qualify for an ARM:

• Credit score of 720 or above

• Debt-to-income (DTI) ratio below 43%

• Down payment of at least 5% of your home value

• Private mortgage insurance (PMI) if your down payment is under 20%

There are several reasons why you might choose an ARM:

• The fixed rate you get for the first period of your loan may be lower than what is available with a comparable fixed-rate mortgage.

• If market rates are high when you buy, then rates may come down in the future and you’ll be able to get a lower rate without a mortgage refinance.
• If you plan to move or sell in the short term, then you don’t need to consider what will happen when your rate adjusts – you can simply budget around your fixed rate for your initial period.

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An adjustable-rate mortgage (ARM) loan is simpler than it sounds. Here’s what you need to know:

• You get a fixed interest rate and annual percentage rate (APR) for the initial period of your loan. For example, a 5/1 ARM means your rate is fixed for five years.

• At the end of the fixed period, your rate starts adjusting with the markets. With a 5/1 ARM, it will adjust each year. A 5/5 ARM means it would adjust every five years.

• When your rate starts adjusting, it may go up or down and your monthly payment will also go up or down.

• There are caps on how much your rate can adjust the first time, each time after that, and in total over the life of your loan.

• The total loan term is usually 30 years.

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