Downward Direction for Down Payments

When it comes time to plunk down a 10% or 20% chunk of your home loan in cash, the down payment can really get you down. In fact, it scares many first-time home buyers away from pursuing the American Dream.

Fannie Mae, the federally chartered corporation that purchases loans from lenders, is trying to lower the financial barriers through a program called the Community Home Buyer's Program. Four specific loan programs offer various reduced down payment options that can get you into a house for as little as 3 percent down, according to Jim DeBoth in The Journal Newspapers.

Start-Up Mortgage. You pay 5% down for this 30-year, fixed-rate, graduated payment mortgage, with interest-only payments in the first year. Although none of your monthly payment goes toward principal or building equity in the first year, the advantage is you get to deduct the entire monthly payment from your taxes, since mortgage interest is deductible. The catch? None of the 5% down payment can come from a grant, family gift or another loan--it has to be money you saved.

3/2 Option. This option lets you dip into the family treasury a little. 2 percent of the down payment may come from a grant, family gift or another loan while only the remaining 3 percent must come from savings. The term ranges from 15 years to 30 years at a fixed rate of interest.

Fannie 97. Here's a deal--only 3 percent down total. But it has to come from your personal savings. Fannie 97 is designed for people with low incomes and a good credit history. Borrowers can use gifts, grants or loans from family members or various programs or agencies--such as housing authorities--to help cover closing costs.

Fannie Neighbors. This program is designed to encourage home ownership in designated central urban (min. population 250,000), areas with higher minority populations, or neighborhoods with a median income at or below 80 percent for the particular metropolitan area.

All programs except Fannie Neighbors are geared toward low-income families. Check with your local lender because income limits are set according to the local economy and housing prices.