An adjustable rate mortgage is a type of mortgage available in Arizona for individuals with less than perfect credit. If you are looking into Arizona mortgages for bad credit, an adjustable rate mortgage might be a good option.

If you have bad credit, you may feel alone and like a failure. You may have trouble getting a car loan, mortgage, or even a store credit card. You may have even lost out on job opportunities due to your FICO score. This can feel isolating and embarrassing. However, you are far from alone. It is estimated that approximately 25% of credit using Americans have bad credit with a credit score below 640. In addition, the average credit score of a credit holding American is about 678, which is far from perfect. In short, you are not alone.

A variety of factors can lead to a low credit score. Divorce, job loss, a sudden change in income, or a downturn in the economy are all factors out of your control that can lower your credit score. If you find yourself in the position of having less than perfect credit, you can still qualify for a home mortgage. When you are looking for Arizona mortgages for bad credit, it is important to know and understand all of your mortgage options as well as the cost that the credit will have in the long run. One option that can work for many families is an adjustable rate mortgage.

An adjustable rate mortgage or ARM is a good options for individuals needing Arizona mortgages for bad credit. An ARM is a mortgage that is different than a 30 year mortgage in that it is for a shorter period of time, anywhere from 1 to 7 years. During that time period you have a low interest rate, usually below the prime rate. This low rate means lower payments. The lower monthly payments helps many individuals and families qualify for an ARM who would not be able to qualify for the higher payments of a traditional mortgage. After the initial period, the rate of an ARM adjusts or resets to a higher than prime rate. This will increase the monthly payment amount based on the interest rate you are being charged. Every ARM has certain maximums depending on the type of loan. There is a maximum amount you can be above the prime rate as well as a maximum number of times the loan can reset.

One of the major criticisms with adjustable rate mortgages has to do with what happens after the rate adjusts. Because the interest rate increases, the amount of your monthly payment will also increase. In the mid-2000s, the increase in payments combined with the decline in the housing market led to a large number of sub-prime foreclosures. This has led to many law makers and media outlets to criticize ARMs as being irresponsible lending practices. However, an ARM can be a good option if you are smart about how you use it.

An important thing to keep in mind with an adjustable rate mortgage and really for any Arizona mortgages for bad credit, is to not borrow more than you can afford. If you cannot afford the payment on a $250,000 mortgage at a 30 year rate, do not borrow that much using an ARM, unless you are planning to move long before your rate resets. In addition, make sure to make smart real estate choices. Before you purchase a home look at the area and the overall price history. Don’t buy unless you are relatively certain that the home will increase in value. Also, look at your credit. It may be bad now, but are you taking steps to rebuild it? If the answer is yes, then you can decide if you will be able to refinance to a 30 year mortgage before your ARM resets. If you will be able to refinance, you won’t ever have to make higher payments because your mortgage rate adjusts.

Finally, an adjustable rate mortgage isn’t only for borrowers needing Arizona mortgages for bad credit. An ARM can be a good option for many investors who are going to live in a home for a short time, fix it up, and sell it for a profit. It can also be a good mortgage option for families who will only live in the home for the initial term of the mortgage and will sell and move before it resets.

A broker can help you navigate the ins and outs of adjustable rate mortgages to help you choose the right loan. Down payment minimums change and so do interest rates. A broker can get you the best deal to purchase your new home, regardless of your bad credit score. Call today to learn more.

Dennis Dahlberg
Broker/RI/CEO/MLO