Hopeful first time home buyers are going to benefit from a long forgotten art of building a savings to buy your first home. It will be difficult and it will take time, you may not be able to buy your dream house as soon as you want; however, in the end you will save tens of thousands of dollars and have a significantly higher level of financial flexibility.

At one time saving up to buy a home was a rite of passage for those in their twenties. As home prices soared over the last decade it has become difficult to build the amount of savings so the mortgage institute offered solutions such as zero-down mortgages as well as outlandish 40 year mortgages. This helped many people get into that first home but cost them financially in the end.

Today these options have all but disappeared under rules that have just been announced by the government. The rules are set for people who have less than 20 percent of a down payment and will need mortgage insurance. Mortgage insurance is a protection paid by the buyer for the lender in case of default.

The zero-down payment mortgage has been very popular with the first time home buyer since it was introduced and the 40 year mortgage has been gaining in popularity as well. Initially people gasp at the thought of a 40 year mortgage; however, the flexibility associated with the longer amortization makes is appealing for many.

With the new set of rules, buyers that require mortgage insurance will be required to have a minimum down payment of 5 percent and the longest mortgage available will be 35 years. Many first time home buyers are rushing to the market to take advantage of the old mortgage options before they are changed. A few banks; however, are already announcing plans to stop offering zero-down and 40 year mortgages immediately. This means that down payments are going to be a factor in all first time buying just in the same way they were in previous generations.

One method of obtaining a down payment is to borrow the money or use products that are offered by some banks that make the down payment for you as a kind of bonus; the draw back is higher interest rates. Setting up preauthorized transfers into a high interest savings account for you pay check is a method to save and come up with a down payment the old fashioned way. These savings accounts do not pay a lot but they are risk free; unlike the stock market.

There are hidden benefits of the new mortgage rules, such as saving a little on mortgage insurance premiums as well as savings in interest over the years. Just going from a 40 year mortgage down to a 35 year mortgage on a $250,000 mortgage could save close to $50,000 on a 5 percent interest rate.