3% and 5% down mortgages are available for fixed-rate loans with most lenders, however, expect to pay a significant amount in PMI each month as coverage requirements for the bank are higher due to the higher risk of foreclosure. PMI cannot be reduced or eliminated until there is a minimum of 20% equity in the house. With little or no property appreciation of value, this could take over ten years. If you can avoid it at all, a 10% or 15% down payment is certainly much preferable due to the significant difference in PMI costs.

The Fannie Mae “Home Ready” and Freddie Mac “Home Possible” programs both offer first-time homebuyers (and anyone who hasn’t owned a home in the last 3 years) the options of reduced PMI 3% down payments. There are income restrictions on these programs by county so consult with your lender to see if you would qualify for the minimum down payment for a house with a conventional loan.

The Federal Housing Administration (FHA), which is run by the national department of Housing and Urban Development (HUD), offers a program that allows for as little as 3.5% down in addition to allowing for expanded underwriting guidelines to make it easier to qualify. It also allows for a reduced monthly PMI cost at this level vs. conventional financing.

Monthly Mortgage Insurance:
Less than 10% down	10% down
.85 Annual premium	.80% annual premium

This can offer advantages and an enhanced ability to qualify for some potential home buyers. The downside is that with less than 10% down FHA PMI can not be removed for the entire term of the loan. In addition, there is an Up-Front Mortgage Insurance Premium (UFMIP) of 1.75%, which can be wrapped into the loan. Some lenders will offer a lender credit to offset the UFMIP in exchange for a higher interest rate.

The Veterans Administration created the VA home loan program in 1944 and to this day offers veterans the opportunity to purchase a primary residence with no down payment AND no monthly PMI. Since the VA is backing the loan, they are assuming the risk as a reward for the veteran’s service. They do however charge an up-front Funding Fee which breaks down as follows:

	If Down Payment is…	The funding fee will be…
First Use:	Less than 5%	2.30%
	5% – 9.99%	1.65%
	10% or more	1.40%
After First Use:	Less than 5%	3.6%
	5% – 9.99%	1.65%
	10% or more	1.40%

Certain exclusions such as being a disabled veteran may result in the discount or elimination of the funding fee. If you are a veteran, check with the VA regarding what funding fee you are eligible for.

The US Department of Agriculture runs a program whereby eligible homeowners may qualify for a zero down payment if they are purchasing in certain rural or light suburban areas. In addition to housing restrictions, there are also income restrictions on these loans. While they do charge an up-front 1% Guarantee Fee and a .35% annual monthly mortgage fee, these fees are notably low for the zero-down option. For the right borrower with the right property, this program can be very advantageous! Check with your local lender to see if you would meet the terms and eligibility requirements.

Check with your state housing authority to see if they are offering special subsidies to banks for lower down payments or reduced interest rates. Some states will occasionally come out with programs or subsidies that are available on a limited basis for lower-income housing. These programs will usually be dried up quickly, so it’s best to call every couple of weeks to check on the status or see if your state will put you on a notification list.