I see you have a lot of advice here but it looks like some info was missed.
If I were going to do an ARM loan, it would be FHA or VA for a couple of reasons.
1) These are not the same ARM programs that caused a lot of the foreclosures, they have great protection built in to them in their caps - the 3/1 should be 1/1/5 and the same for the 5/1. This means the rate can not increase by more than 1% each year and has a life time maximum cap of 5%.
2) The index that these programs are tied to has historically been pretty stable.
What interest rate is the lender using to qualify you on the 30 year fixed?
Are you self employed or did the underwriter cut your income due to tax deductions or something else?
Did the lender present you with the option of buying down the 30 year fixed rate?
Are you dealing with a direct/retail lender? If so it may be a lender specific guide line.
Do you know what your dti is on the 30 year fixed?
I would probably steer clear of an ARM simply because there is no guaranty that you will be able to refinance the loan in the future.
My noble colleagues have given you plenty of good advice as to why ARMs are not a good idea for a lot of people. That said, there are very good reasons that people choose ARMs to finance rather than fixed. The key here is that it depends on your situation.
Example: couple buys house with ARM because wife or husband will stay at home for 2 years with their newborn child. After two years, their income goes up when both parents go back to work, maybe even doubles, then they can move into a more permanent or fixed rate mortgage.
It you are considering doing this because of your Debt-to-Income ratio, I would advise against it, unless you have some guarantee of debt repayment to put you into a better situation (maybe the first time buyer tax credit)? This could all make perfect sense on paper, but there is absolutelee no guarantee that the loans and requirements used to day will be available in a month. you may find your DTI needs to be even lower, then you're stuck. Again, everything depends on your situation.
Finally, you need to consider if you're ready to buy a house. Sometimes your best investment decision is waiting until you're ready to buy, especially if you risk a future foreclose, bankruptcy, etc which will follow you around for 10 years (not just for loans, but for getting a job). If this is a straightforward DTI issue, pay down your debt first, then save some money for a down payment. You are going to have a hard time being a homeowner if you can't do that.
here is why. You get the loan. Time passes. Interest rates rise, your income does not. in 3-5 years you have to refinance at 10% or more. All of a sudden the house you could afford becomes something you must get rid of to survive.
If you do not think that is possible please consider 2 things.
1We are at almost 0% interest rates form the federal reserve now. Rates can only go up.
2. we have a lot of foreclosures today. Many of them were caused by ARM's adjusting up. You could end up in the same position.
If it was me I would do one of two things.
1 find a lender who would give me a fixed rate loan
2 improve my credit and financial resources until I could get a fixed rate mortgage.
FHA allows non-occupant co-borrowers. This is a great option if it makes sense. Rates are low right now and most experts say they are going to rise this year. So, while you may be able to refinance, the rates may not be in your favor.