FHA 5/1 ARM Question

My husband and I are trying to purchase a condo and are stuck on which financing option to go with. Wells Fargo, the condo's preferred lender, is offering an FHA 5/1 ARM. The seller has agreed to buy points in order to bring the interest rate down to around 3.5%. Basically after 5 years the rate could increase by as much as 1% each year with a 5% increase cap. So we could see the rate go up to as much as 8.5% in potentially 8 years from now. My husband and I are purchasing this condo because we belive its priced a little bit lower than what it probably should be and thus would end up being a pretty good investment. We're planning to buy more of a family home in about 5-6 years when we decide to start our family with kids and have more money to afford a bigger home. That being said, would this FHA ARM be a good option for us? Right now it seems great, and we don't really see the downside. We'd save a few hundred bucks a month going with this instead of a typical Fixed FHA loan with a rate of 5% or so. And we plan on selling it before the rate would go up past 4.5% However, I obviously still have my reservations. Are there any hidden fees or other things we should know before considering moving forward with this type of a loan? It seems risky to me because I've been told to stick with a fixed rate right now and to stay away from ARM's. Does anyone have any similar experience or insight with this type of a loan? by kimmy525 from Salt Lake City, Utah. Mar 1st 2010 Reply