HOME buyers are often advised to come up with at least a 20 percent down payment, or face the likely additional expense of private mortgage insurance. But this year, at least, that counsel would not have saved them as much money as in the past.

For most people, it turns out, smaller down payments result in lower interest rates. Whether that benefits borrowers in the long term, though, is open to debate.

Take, for instance, borrowers who want to buy a $400,000 home, and who have a credit score of 720, which is considered very good.

In late August, such borrowers who had $80,000 saved for a 20 percent down payment would have qualified for a 4.875 percent rate on a 30-year fixed-rate loan, according to Regina Mincey-Garlin, an owner of RCG Mortgage in Montclair, N.J.

But that was also the rate offered to borrowers putting down only 5 percent, and therefore required to have private mortgage insurance.

Oddly, those who put down 25 percent, or $100,000, were saddled with a higher interest rate, 5.375 percent, Ms. Mincey-Garlin said.

The underwriting rules from Fannie Mae and Freddie Mac consider borrowers in the 20 to 25 percent down payment category to be the riskiest, in part because they are not required to carry private mortgage insurance. At higher down payments, however, rates begin to fall.

Amy Bonitatibus, a spokeswoman for Fannie Mae, said that the policy wasn’t meant to encourage lower down payments, which some have seen as the main culprit in the home foreclosure crisis.

“It’s just a less risky loan from our point of view,” Ms. Bonitatibus said, because the lender’s exposure to foreclosure losses is largely eliminated by mortgage insurance.

She said the policy didn’t benefit only Fannie Mae and lenders that sell loans to the company.

Borrowers benefit too, she said, especially those who would otherwise have had to stretch for a bigger down payment and leave themselves with no financial cushion. These borrowers can instead save the extra cash they might have put toward a bigger down payment, keeping it handy for emergencies.

Besides, Ms. Bonitatibus noted, as soon as borrowers pay off enough of their loan principal to establish a 20 percent equity position in the home mortgage, insurance is no longer required.

While borrowers who take out mortgage insurance can indeed enjoy lower interest rates, their monthly payments will be larger than those who made the larger down payments, because the loan itself is bigger.

A borrower who put down 25 percent for a $400,000 home would make a monthly mortgage payment of $1,680, while the borrower who put 15 percent down would pay $1,906 — or $1,799 in principal and interest, plus another $107 monthly in mortgage insurance. (The mortgage insurance is tax deductible, however, so depending on a borrower’s financial circumstances, the net mortgage liability would probably be less.)

Ms. Mincey-Garlin of RCG Mortgage says she still advises borrowers to make a down payment as large as they can, because the increased equity will help them in the long term.

She also suggests that borrowers maintain savings equivalent to at least nine months of mortgage payments.

Those who choose to make a lower down payment in the expectation of terminating their private mortgage insurance after a few years may encounter a harsh surprise, Ms. Mincey-Garlin said.

With property values declining, she said, some lenders have balked at releasing borrowers from mortgage insurance.

The housing crash brought with it many changes including government programs to aid homeowners facing foreclosures, a closer look at lending practices, and new loan products for consumers.

The last item is what concerns many Americans who are interested in taking advantage of falling housing prices. A study called, A Financial Analysis of Consumer Mortgage Decisions written by Andrew J. Kalotay and Qi Fu and released by the Research Housing Institute for America (RIHA) and the Mortgage Bankers Association (MBA) details information on getting a mortgage loan.

Getting as much information and education about the best options before taking a mortgage loan has never been more vital—it can help ensure that your borrowing strategy is successful.

Fu says their study focuses on three main areas in the mortgage industry. The first chapter is about how to select a mortgage based on the points menu. "The first question to ask is how to make a decision when given the choice between paying points and paying a higher rate," says Fu.

He says that often borrowers who simply look at the Annual Percentage Rate (APR) don’t consider all the necessary facts to make the best choice. "The APR includes some information but it doesn’t account for the possibility that the mortgagor may refinance down the road," says Fu. The study gives the mortgagor a deeper look at this consideration. In chapter two, another key concern is addressed. The study helps mortgagors answer the question of when to refinance.

"Oftentimes when mortgagors make a decision they only consider the savings they get from refinancing but what they don’t consider is the opportunity-cost that they’re giving up of possibly refinancing at a lower rate down the road," says Fu. The study, using graphs, charts and case studies, aims to help mortgagors understand "refinancing efficiency" and a formula that helps them decide the optimal time to refinance.

Fu says homeowners can save lots of money by first making sure that the timing is best for a refinance. He recommends using their refinance calculator which can be found online at kalotay.com/calculators In chapter three, the study covers, "When you have a lump sum [of money] and you have a choice between investing in something else or paying down your mortgage—how to best consider that decision," says Fu.

The 60-page study available online at the Mortgage Bankers Association offers borrowers a glimpse of how to handle this situation, suggesting possible, but limited, alternative investment options. Visit mbaa.org. For investing in alternative assets, greater research would be helpful; however, overall, this report provides good information for borrowers to consider before taking out a mortgage loan. It provides clear definitions and methods to analyze complex mortgage products for borrowers to review in order to be better equipped to make important financial decisions about future mortgage loans.

It's one of the biggest unknowns bugging would-be buyers of houses and condos this summer: Will Congress let the $8,000 nonrepayable tax credit for first-time purchasers expire as scheduled 14 weeks from now?

Or will the credit get a second life and be extended for six to 12 months, taking pressure off buyers, real estate agents and escrow companies?

That's an especially urgent matter if you're a buyer just starting to shop and you see entry-level prices bottoming out or rebounding in many local markets. The tax credit statute requires buyers to fully close on their purchases -- not just be in escrow -- no later than Nov. 30. This doesn't leave a lot of leeway for people who haven't yet decided on a specific house and who haven't nailed down financing.

The process of negotiating offers, signing sales contracts, applying for a loan and completing the closing can easily extend for two months -- or a lot longer if things get off track.

Given the rapidly approaching deadline, what's the likelihood that Congress will allow at least a little extra time? Here's a quick overview: Although Congress is on its summer break, most members of the Senate and House use part of the August recess to meet with and listen to constituents in their home districts.

This year, the two biggest housing trade groups -- the National Assn. of Realtors and the National Assn. of Home Builders -- are spending the month mounting intense lobbying campaigns to make the case for extending the credit and maybe even expanding it. The effort is targeted first at the districts of members of the two tax-writing committees -- House Ways and Means and Senate Finance -- but is expected to cover most other members as well, according to officials of the two groups.

Delegations of home builders and real estate brokers already have begun descending on district offices, delivering what Jerry Howard, president and chief executive of the builders association, calls "the hard economic facts" -- the numbers of houses sold in each Congress member's district that are attributable to the tax credit; the economic ripple effects on local businesses, manufacturers and service industries; new jobs and income; plus the additional tax revenue that all this activity will help produce for local governments.

On a national basis, according to economists at the National Assn. of Realtors, the credit will be responsible for 300,000 to 350,000 additional sales of houses this year. Each home sale generates about $63,000 in downstream "ripple effects" elsewhere in the economy, they say.

If you accept the numbers, which some analysts consider a stretch, this means the housing credit provides a powerful, immediate stimulus bang for the buck. Failure to extend what may be one of the most effective pieces of the Obama administration's 2009 stimulus legislation would cost jobs, economic growth and tax revenue, the housing groups contend.

There are some signs that Congress may be getting the message. Bills are pending in both houses to extend the credit for another year. Senate Majority Leader Harry Reid (D-Nev.), whose state has been among the worst hit by the housing bust, reportedly favors an extension of the credit. He was quoted to that effect by the Las Vegas Sun on Aug. 5.

Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, is cosponsoring a bill with Sen. Johnny Isakson (R-Ga.) that would raise the credit amount to a maximum of $15,000. Meanwhile, the Realtors and the builders are pushing not only for extension of the credit, but for broadening it to cover all home purchases in 2010.

But can any of this happen before the Nov. 30 deadline? The key complicating factor here is Congress' heavy load of higher-profile issues that will get attention before anything else in September and October. On top of that, a tax credit extension would cost billions in lost revenue -- a big negative when the federal budget deficit is in record red-ink territory.

In the end, however, given the political economics of the housing credit, the odds favor some sort of extension, probably later rather than sooner.

Let's say you are in the home buying market and have decided to buy a home. So you're driving around the neighborhood and spot a For Sale by Owner sign in a yard. It's probably a small red-and-white sign, with a hand-scrawled phone number. Although, I did see a For Sale by Owner sign recently that was made out of wood and engraved with the seller's name and phone number, like an architect's sign, but many For Sale by Owner signs are handmade.

Reporting from Washington - First-time home buyers had better get a move on if they hope to take advantage of the $8,000 federal tax credit. The window of opportunity is closing rapidly.

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