Couple buying 1st house

[Brent Matthew]

My wife & I are in our early 30's, and looking to buy our 1st house, $100k or less. Average home value here is $130-$150k. We have great credit and hardly any debt. My plan is to save enough for a 20% down payment on a house in the next 12 months. Our local credit union offers a rebate interest mortgage, currently 5.375% fixed rate, and 4.5% ARM. They give members 70-75% of their interest back each year. Is 20% down a good plan or should I do less and use the extra money for updates to the house? And do you have to pay PMI on FHA loans for the entire length of the loan?