Mortgage 101: Fixed vs. ARM, Points, and Pre-Approval in California

With many East Bay homes well into the high six and seven figures, the loan structure you choose can cost (or save) you tens of thousands over time.

Fixed vs ARM at a glance

Fixed-rate

Payment stays level for the full term
Easier long-term budgeting
Usually a higher starting rate than an ARM intro period

ARM

Lower intro rate for a fixed period
Rate adjusts after intro (index + margin)
More useful if you may sell or refinance before reset

Interactive

Payment estimator

Model principal & interest with a rough East Bay tax and insurance cushion.

Principal & interest

$5,057 /mo

Est. housing (P&I + tax + ins.)

$6,348 /mo

Loan amount: $800,000
Tax (est.): $1,000/mo
Total interest: $1,020,356

Educational estimate only. Not a pre-approval or lender quote. Tax assumes ~1.2% of price (East Bay ballpark); insurance is a rough placeholder. Your numbers will differ.

Fixed-Rate vs Adjustable-Rate Mortgage (ARM)

Feature	30-year fixed	15-year fixed	5/1 ARM	7/1 ARM
Rate stability	Fully fixed	Fully fixed	Fixed 5 yrs, then adjusts	Fixed 7 yrs, then adjusts
Best for	Long-term stability	Faster equity, higher payment	Short hold (<5 yrs)	Medium hold (about 5–10 yrs)
Typical rate vs 30-yr fixed	Baseline	Lower rate, higher payment	Lower intro rate	Modest intro discount
Rate risk	Low	Low	Medium	Low–medium

Buyers who plan to stay 7+ years often prefer a 30-year fixed for payment certainty. A 7/1 ARM can make sense if you have a clear plan to move or refinance before the adjustment window - not as a default "cheap rate" choice.

Conforming vs Jumbo Loans

For 2026, the conforming loan limit for one-unit homes in Alameda and Contra Costa Counties is $1,249,125 (high-cost ceiling). Loans above that are jumbo and often require:

Larger down payment (20% is common; some programs allow less with strong profiles)
Stricter debt-to-income and credit guidelines
More cash reserves (often several months of PITI)
Pricing that can be higher or lower than conforming depending on the market

Discount Points

One point equals 1% of the loan amount, paid at closing to lower the interest rate (often around 0.25% per point, but it varies by lender and day). On a $900K loan, one point is $9,000. Whether it pays off depends on how long you keep the loan and the actual rate reduction offered.

Interactive

Points break-even

How long until a lower rate pays for discount points?

Points cost: $8,000 · Monthly savings: $132

Break-even in ~61 months (~5.1 years)

Points tend to help if you keep the loan past break-even. Selling or refinancing earlier can erase the benefit.

Educational only. Actual pricing, credits, and APR depend on the lender and loan product.

Loan Program Types (Including Veterans and Other Special Cases)

Rate type (fixed vs ARM) is only half the story. The program you use also changes down payment, insurance, and how competitive your offer looks in the East Bay.

Conventional: The most common path for buyers with solid credit and some cash. Down payment often ranges from about 3% to 20%+; private mortgage insurance (PMI) usually applies until you reach ~20% equity. Within the conforming limit above, pricing is often the benchmark other programs are compared against.
FHA: Can help with lower down payment and more flexible credit, but you pay mortgage insurance (MIP) and follow FHA property and appraisal rules. In multi-offer East Bay situations, sellers sometimes prefer conventional or cash - not always, but it is worth modeling with your agent before you assume FHA is the strongest package.
VA (veterans and eligible service members): Often allows $0 down and no monthly PMI if you qualify. You will need a Certificate of Eligibility (COE) and a lender who regularly closes VA loans. There is typically a one-time funding fee (some veterans are exempt). VA can be very competitive on payment and cash-to-close; appraisal and residual-income rules still apply, so get a real pre-approval before you write.
Jumbo: Covered above - still a program choice when the loan amount exceeds the high-cost conforming limit.
Other special cases: Self-employed or non-W-2 income may need bank-statement or non-QM products. Renovation loans exist if you are buying a home that needs work. USDA is designed for eligible rural areas and rarely fits denser East Bay cities. If your situation is nonstandard, ask a lender early rather than forcing a conventional box.

Program choice is about payment and offer certainty. Pair a strong pre-approval letter with proof of funds for down payment and closing so sellers can see you will close - especially with FHA or VA.

CalHFA Programs for First-Time Buyers

The California Housing Finance Agency (CalHFA) offers down payment assistance and related products for eligible first-time buyers. Programs such as MyHome Assistance can provide a deferred junior loan toward down payment and/or closing costs, subject to income, purchase price, and other limits. Rules change; confirm current terms with a CalHFA-approved lender before you count on them in an offer. Some buyers stack CalHFA help with a conventional first mortgage; ask a CalHFA-approved lender what combinations are available for your file.

What Lenders Check

Credit score: Higher scores unlock better pricing; conventional often starts around the mid-600s, with best rates typically at 740+
Debt-to-income (DTI): Housing and total debt ratios; many files land in the low-to-mid 40%s or lower for comfort
Down payment source: Seasoned funds (often 60 days of statements) and paper trail for gifts
Employment: Stable history (commonly ~2 years W-2, or self-employed tax returns)