You really have to decide what works best for you. BBVA Compass offers 15 and 30 yr. fixed rate loans, but I have to agree with going with the 7/1 ARM in most cases. The rate is a lot lower, you can pay extra to the principal anytime you want, there is no pre-payment penalty, and there really is a good chance you will be selling/moving up at the end of the 7 years. Or, if you pay the balance down a lot during that 7 year period, even if the first adjustment maxes out, the payment won't go up any. And, at the end of the 7 year period chances are the income will be much higher, so if the payment does go up, it's not noticed so much.
As far as a larger down payment, again that's truly a personal preference. Something to keep in mind is that for every $1,000 you reduce the loan amount, you are saving about $5.00 a month on the monthly payment. So in essence, you might be spending $20,000 cash to save $100 a month on the mortgage payment.
FHA loans are going to be even more expensive come April 9. At the present time the Up-Front Mortgage Insurace Premium is 1.00%. On April 9 it goes to 1.75%. The annual mortgage insurace is now 1.15% and is going to 1.25%. Based on a $200,000 purchase price with 3.50% down payment this calculates to a monthly increase in payment of about $26 a month higher than what FHA is charging now. Monthly MI on this loan would be $201.04 every month. Yes, FHA rates are lower than 30 yr. fixed rates on Physician loans but the Mtg. Ins. every month is a lot. Plus, since mortgage interest paid is currently tax deductible and mts. ins. isn't, it really nets it down.
I don't know about other companies, but our 7/1 ARM rate is currently 1.125% less then a 30 yr. fixed. On a $200,000 loan amount, that is a difference of $130.19 a month. That is almost $11,000 in savings over 7 years.
When the time comes for you to buy, sit down with a good loan officer and let him/her help you decide what would work best for you. Look at all the options, not just what they want to try and sell you. You have choices. If I had any advice to give you, that would be it.
Just so you know, Compass will only do this loan in California, Arizona, New Mexico, Colorado, Texas, Alabama, and certain areas of Florida. We do require a 5% down payment and the maximum loan amount with 5% down is $1 Million. There is no minimum loan amount. The Seller can pay all closing costs/prepaids. All funds can be gifted. Minimum credit score is 700.
I hope this helps. It might be too much information, but I prefer you know your options. If you have any more questions, just PM me and I will get right back to you.
