FHA 30yr vs, Conventional vs. FHA 5/1 ARM

[jd403]

Looking for some advice as a first home buyer.  I spoke with a LO today who suggested I go with an FHA 5/1 ARM. His reasoning being that I can have a low rate under FHA with a low monthly payment.  In a year, look to refinance and go conventional.

My situation is that I have had two tax liens deleted off my reports and one medical collections that EX deleted today and TU/EQ should be deleting in the next few days.  I have $3200 total credit limit across 3 cards that I reduced to under 35% utilization and should reflect by Monday.  This should help my scores? When I pulled my report on1/18 my mortgage scores were 638/615/584

What are the thoughts of those with lots more knowledge?

[cartwrna]

With the ARM you have to look at total savings. If you refinance in a year you will end up paying more than you saved in the lower APR due to the fees and closing costs. I went with a 10/1 ARM, but plan on refinancing if rates go up. I only got it to use in house financing at my credit union as they could overlook some small issues that wouldn't of made it secondary market sellable. Right now out of all honesty ARMS are not a good way to go due to the already low rates, although the people who got them in the past prior to the rate declines are laughing all the way too the bank now.

[DallasLoanGuy]

if you plan to refi into conv in a yr it is a no brainer. use the savings to pay off other debt

will there be enough equity to refi in a yr? 

[jd403]

The only debt I have is a car loan with $17k that has a $400 payment each month.  CC balances are low and that's it!

Tired of renting and with 2 small girls I'm looking to give them and my wife stability.  

[cartwrna]

^ your onto something. Women love stability! 3 ladies in your life, you better get a home or it may turn out bad for you LOL! All jokes aside, If your mortgage scores you pulled still included the tax liens, as well as the medical debt id venture to say you will see a substantial score increase with them being deleted. Unless your midscore goes above a 680, I would go with an FHA loan. Yes you have PMI for life of the loan, but the PMI on a conventional loan with a score below 680 is horrendous territory $$$. Once you get your scores up above 680 if you then want to go to a conventional loan so that you can be rid of PMI you can refinance. Get those little ladies a home!!!

[StartingOver10]

^^Cartwrna nailed it

[jd403]

Yes, Cartwrna they do have final say .  Boy if Vantage scores were used for mortgage loans, I'd be set.  TU & EQ both have me above 680.

I've been talking to one LO who I'm on the same  page with.  We are going to pull my reports and scores on Feb. 8th.  By that time, FICO will have my reduced CC balances which should help boost all my scores and the final medical collection will be deleted off all reports.  TU is the only one I'm waiting for.