Ideally you would purchase your house with a 20 percent mortgage down payment closing costs equal to about 3% to 5% of the purchase price and enough left in your checking account to cover two or three months of monthly housing expenses. That starts you out with lots of equity in your house upfront and makes the lender happy as a result of your large mortgage down payment -- something that usually translates into a better deal. The trouble with this mortgage down payment plan is coming up with that much cash is too much to ask from many first-time buyers. After all we're talking $40000 mortgage down payment on a $150000 loan or $70000 on a $250000 mortgage.

The good news is that lenders over the last couple of years have become increasingly willing to finance as much as 95% or even 97% of a home purchase. The reason: They can now unload the risk of such loans onto somebody else. To limit their exposure many lenders regularly sell their loans to the Federal National Mortgage Association (Fannie Mae) which then bundles them into securities which are eventually sold to investors. It used to be that Fannie Mae only would buy loans for 80% financing. But it recently standardized the lending criteria for 97% financing and will now buy these loans making lenders much more willing to provide them to you with less mortgage down payment. It's now common for first-time buyers to put down only 5% mortgage down payment or $7500 on a $150000 loan.

While this sounds enticing remember that small mortgage down payments have their price. First of all you start with very little equity in your home. Also if you don't have 20% to put towards you mortgage down payment you'll probably have to ante up for mortgage insurance which protects the bank against default and can top $1000 a year if you put 5% down on a $200000 loan. Mortgage insurance rates are fairly standard but rates for adjustable rate loans and alternative credit can be much higher than a good credit fixed rate loan.

If you are buying in an urban area or have low to moderate income look into programs offered by your city or state that provide below-market loans with little or no mortgage down payment required. If you're really cash-strapped you can get 100% financing by "piggy-backing" a second loan equal to 20% of the purchase price on top of your 80% loan. But that 20% second mortgage will come at a much higher rate.