Don't base loan selection on affordability alone

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Q: I have a real estate agent who cares only about her commission. I don’t think she cares about the type of loan I am getting. I’m in contract to buy a house for $275,000, and the loan officer said I can get a $275,000 5/1 adjustable-rate mortgage (ARM). But I don’t want an ARM loan, because it is not fixed. I want to continue shopping for a loan to get the best one I can. Please advise, especially about the ARM loan. –Queen

A: Regarding your real estate agent, you’ve got bigger fish to fry, sister. Some agents know a lot about loans and get very involved in their clients’ financing arrangements; others, not so much. But you should let your agent know that closing the deal depends on a satisfactory financing situation — she might take more of an interest then.

More important, though, I’d advise you to get a new mortgage broker — and fast. Is an ARM the end of the world? Not necessarily. The rates are super-low. The FHA versions have quite reasonable lifetime caps. A fully amortized ARM avoids the issue of dramatic increases in payment, which resulted in so many foreclosures on the interest-only and negatively amortized ARMs of yesteryear.

I’ve written extensively in the past and will, I’m sure, have occasion to write extensively in the future about how the ARM feature itself was not the problem. With that said, at today’s low interest rates and home prices, if you can get a long-term, fixed-rate mortgage that is well within the bounds of your budget, you should be in very, very good shape for the long term — assuming that you don’t further leverage your home later.