In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on you loans structure.

The only way you can avoid having to pay for PMI is to have 2 loans (referred to as an 80/20 combo in most cases) instead of one. The second loan will be self insured and usually at a higher rate than the first loan. Even though you have a higher rate on the second you may find this type of loan scenario will be in your best interest in the long run and save you money. For example if you buy a home for $100,000 with no down payment then you can have the first loan of $80,000 and a second loan of $20,000.

Many sub-prime lenders do not require mortgage insurance due to the fact that it is built into the rate.