Remember the Red Queen’s warning to Alice? “It takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast.”

That must be what it feels like to be saving up for a down payment on a home these days. 

Washington policymakers are entertaining several proposals that would raise the minimum down payment required for loans backed by Fannie Mae and Freddie Mac. Lenders are raising their own minimum cash requirements — the average down payment on new loans for home purchases is now around 27%, according to the Mortgage Bankers Association of America. 

Meanwhile, the Federal Housing Administration, the chief source of low down payment loans, is raising the fees it charges folks who only have minimal amounts of cash to the table.
Trying to save just the standard 20%? That could take you 14 years if you’re an average middle-class family looking for an average middle-class house, the Center for Responsible Lending reported recently. If you save $250 a month, it would take nine years to save a 10% down payment and six years to save a 5% down payment.

And that doesn’t seem to pay. If you think about the cost of paying rent for five or more years, you may be better off jumping into a home with a low down payment now. That’s true even if you have to spend more money on fees and mortgage insurance to get one of those low down payment loans. While nobody can predict interest rates with certainty, it seems unlikely that the mortgage terms you’d face down the road would be as favorable as they are now, with the Federal Reserve holding short term rates close to zero, and the government still backing loans via Fannie Mae and Freddie Mac.

Even if you have the money for a bigger down payment, there can be good reasons to save your cash. Mortgage rates continue to skirt all-time lows: Why not put your money to work for yourself and borrow as much as you can reasonably afford, on a monthly basis, at today’s rates? You can put the money you’re not paying into a down payment to work elsewhere. If home values rise, you will have done your best to leverage a small down payment into bigger equity. If they fall, you’ll have less skin in the game, and that could put more pressure on your banker to improve your loan terms lest you walk away.

The most popular source of low-down payment loans is the Federal Housing Authority, which backs loans that cover as much as 96.5% of a home’s value. To get one of those 3.5% down payment loans, though, borrowers have to pay 1% up front and annual mortgage insurance premiums. Beginning on April 18, those premiums will rise 0.25 percentage points, to 1.1% for borrowers who put at least 5% down, and to 1.15% for borrowers who only put 3.5% down.

That may seem like a big price to pay, but the FHA plan buys you a couple of advantages. An FHA loan may get you into the house years earlier, while rates and housing prices are low. And the actual mortgage rates for FHA loans are lower than traditional loans. Consider these figures calculated by Keith Gumbinger of HSH.com, a mortgage research firm, on the purchase of a $250,000 home:

* With a 3.5% down payment, you’ll need $8,750 in cash for the down payment plus $2,412 for the initial buy-in fee. At 4.87% interest, your monthly payment would be $1277 $1,507.

* With a 5% down payment, you’ll need $12,500 for the down payment and $2,375 for the buy-in fee. At 4.87%, your monthly payment would be $1,474. You’d need $3,713 more up front than with the 3.5% loan, and you’d pay just $33 a month less. It would take more than nine years of lower payments to make up for that $3,713.

* With a 20% down payment, you’ll need $50,000 for the down payment. There would be no upfront fee and no monthly insurance premium. But your rate would be higher, at 5.01%, based on today’s averages. Your monthly payment would be $1,075 — $399 less than the 5% loan and $432 less than the 3.5% loan. You’d have to save an additional $37,500 (how long would that take?), and it would take more than seven years of those lower mortgage payments to catch up.

It looks like the less you put down, the better off you are. And if that extra monthly payment really starts to annoy you after seven or nine years, you can always refinance. With all of your payments and a little good luck in your market, you’ll have enough equity to avoid the mortgage insurance by then.