Fuse—Getty Images/Corbis
By Ian Salisbury
April 21, 2016

Student loan debt, high rents, and high home prices have combined to make it difficult for millennials to get into a first home. The under-35 home ownership rate was 36% in 2014 (the latest data available), according to Harvard’s Joint Center for Housing Studies, down from a 2004 peak of 43% and the lowest level since 1994. Even 35- to 44-year-olds are less likely to own homes.

This isn’t a problem just for young buyers. Less demand on the low end can put a damper on prices overall, as trader-uppers are slow to sell and downsizers find fewer takers. “Baby boomers who want to retire and sell their homes need available buyers,” says Nikitra Bailey, executive vice president of external affairs at the Center for Responsible Lending.

Read Next: 6 Smartest Moves for First-Time Home Buyers

That has left the government in a sticky situation. When you can’t scrape up a big down payment, as many first-time buyers can’t, you run the risk of becoming saddled with a home worth less than your mortgage if real estate prices crater. At the peak in 2012, 16 million homeowners were underwater, according to Zillow, though that was down to 6 million at the end of 2015. No one wants a repeat of history.

Still, the government has been enhancing programs for first-time buyers, and millennials are starting to make up a bigger portion of buyers. So whether you’re aiming to buy a starter home yourself or helping your kids realize that dream, the outlook is brighter.

Go to the government

Last year the Obama administration made one of the best solutions to the down payment problem even better. With a loan from the Federal Housing Administration, you can buy with as little as 3.5% down and a credit score of 580. The trade-off is that you pay for mortgage insurance, fees that essentially boost your loan rate. But the FHA cut the annual premiums for borrowers putting down less than 5% from 1.35% of the loan value to 0.85%, a move estimated to save a typical buyer $900 a year.

See if you can do better

In 2014, Fannie and Freddie started offering mortgages with as little as 3% down. These require higher credit scores (typically 620). But they have a big advantage over FHA loans: You pay mortgage insurance for the life of the loan with a 3.5%-down FHA loan; with Fannie and Freddie you stop once your principal payments add up to 20% of your initial home value. One caveat: You may run into income limits to qualify—no more than 100% of the median income in some areas. For more, visit TheMortgageReports.com and click on “loan types.”

Defer the dream

Just because you can buy a house with 3% down doesn’t mean you should. Even a small drop in home prices could leave you underwater, especially since real estate commissions typically amount to 5% of the sale price.

Plus, notes Denver financial planner Kristin C. Sullivan, “if all you can manage to save is 3% down, you might not be ready for all the other costs of ownership.” She suggests putting at least 10% down. Failing that, look at cheaper houses or wait a little while before you buy.

Be ready to leave

With fixed rates so low nowadays, it’s hard to make the case for risking higher rates later. But adjustable-rate mortgages are more affordable in the short term, and according to the National Association of Realtors, 56% of homeowners under age 34 stay in their homes for five years or less.

Calculator: Which is better, fixed or adjustable-rate mortgage?

“If you know you are going to be in the house less than seven years, it can make sense to get the lower rate,” says HSH’s Tim Manni. Today you’ll pay 3.5% on a seven-year ARM, vs. 3.9% for a 30-year fixed.

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