You are choosing an excellent time to enter the market as interest rates are at historic lows. However, there is also a challenge in this market environment because there is a shortage of homes for sale. That means that the strongest of the multiple offers are getting the homes. One might ask "What makes my offer strong?" 1) buyer pays for their own closing costs 2) buyer uses a conventional loan with at least 5% downpayment 3) buyer pays cash 4) most importantly, buyer pays market value for the home.
Since there are many investors and normal buyers looking to take advantage of these low rates, the competition for most homes is rampant. Even 1 week before Christmas there are new listings getting multiple offers, due to the backlog of buyers from the summer and autumn months. Homes are selling at market value with little to no closing cost credits, and many homes are being bought by investors and conventional loan buyers.
As others have said below, there are FHA programs that could allow you to finance most of the downpayment (if you qualify). This means you would be able to use some of your savings toward closing costs instead of towards the downpayment. The result is an FHA offer that is as strong as possible (compared to other FHA offers). You might still miss out on a couple offers to the above competition, but you will certainly get into escrow faster than an FHA buyer who is trying to get a 3% credit.
Should you wish to discuss this strategy in further detail, along with your preferred neighborhoods and budgetary limits, I am a phone call away. My recommendation for a local direct lender who can help you figure out the best loan for your needs is Joseph Fernando at Performance Mortgage (661) 349-4770.
Thanks for your time and good luck in your search.
I think one of the main things to consider in putting less money down is having PMI. For some people this is a better option for others putting as much money down to avoid PMI is better. Here is my lender's name and number, Rob Chang 818-340-5900. He can go over all the different scenarios with you to see which one makes better sense. With my clients he usually will cover their closing costs which is an added bonus, and he doesn't nickle and dime you.
With prices still low, downpayments are about 3 1/2%, with about 3% of sales price towards your closing costs. The City of Palmdale does have a homebuyer program, for owner occupants, who are looking to purchase in the City.
Your first step, is to speak with a lender, to determine your comfortable loan amount, which in turn determines your price range.
I'd be happy to assist you in your home search, and as Sheryl said, you may qualify for the CHDAP 2nd to assist with downpayment & closing costs. Your lender will be the best one able to assist you in your determination for downpayment assistance.
Please let me know if you have questions, concerns or are ready to start looking at properties.