“Homebuyers with little money for a down payment are finding more options for home loans”, reports Holden Lewis, Bankrate.com. What are the choices?

No down payment: VA Loan
Veterans Affairs(formerly the Veterans Administration) guarantees no-down purchase mortgages for qualified veterans. There is no mortgage insurance. The borrower pays a funding fee, which varies from 2.15 to 3.30 percent, based upon the Vet’s service and if it’s a first or subsequent loan. The funding fee can be financed into the loan.

No down payment: Department of Agriculture (USDA-RD)
The Department of Agriculture's Rural Development mortgage guarantee program is so popular that it ran out of money in May. Congress has now restored funding. Geographical restrictions are detailed on its website. There is no mortgage insurance, but USDA levies a 3.5 percent guarantee fee which can be financed into the loan.

Low down payment: Federal Housing Administration (FHA)
With a minimum down payment of 3.5 percent, the FHA is the low-down-payment option that's available to the most people. FHA guaranteed loans require two premiums. A one-time upfront premium (UFMIP) is due at closing and an annual premium is remitted on a monthly basis based upon the initial loan-to-value ratio and the term of the loan.

Insurance fund losses are compelling the FHA to hike its annual premium. Effective October 4th, on a loan with the minimum down payment, the annual premium will increase to 0.90 percent from the present 0.55 percent. That’s an increase to $900 from $550 a year for each $100,000 borrowed. The FHA also charges an UFMIP of 2.25 percent of the mortgage amount which can be financed into the loan. The UFMIP will be reduced to 1.0 percent on October 4.

Another low-down-payment option: Private Mortgage Insurance (PMI)
Borrowers with down payments less than 20% can opt for a standard home loan with PMI. Private Mortgage Insurance is not the same thing as FHA insurance.
 
Many private mortgage insurers have lowered their down payment requirements offering competition to government-insured loans. Typically, monthly PMI costs more than FHA insurance for borrowers who put down 5 percent. However, PMI may cost less than FHA for loans with down payments of 10 percent or more.

Private mortgage insurance has another edge over FHA. Under certain conditions, you can cancel PMI earlier - as soon as two years after you get the loan, compared to a wait of at least five years to cancel FHA insurance.

PMI has become easier to get. Some insurers have removed “declining market” status from many hard-hit markets reducing down payment requirements from ten percent to the more traditional five percent.