Can I Buy a House With 5% Down?

Where the 20% Number Actually Comes From

The 20% figure isn't random, and it's not a scam. It comes from one specific rule: if you put down 20% or more on a conventional loan, you don't have to pay Private Mortgage Insurance, or PMI.

PMI is an insurance policy you pay for but the lender benefits from. If you default, PMI covers the bank's losses. It adds anywhere from $100 to $400 a month to your payment depending on the loan size and your credit.

A lot of well-meaning people—parents, friends, even some real estate agents—hear "put down 20% or you'll pay PMI" and turn it into "you need 20% to buy a house." They're not the same thing. One is about avoiding an extra monthly cost. The other is about being locked out of homeownership entirely. You're not locked out. You just need to understand the tradeoffs.

What 5% Down Actually Looks Like (Real Numbers)

Let's use real numbers. Not abstract percentages. A house that costs $400,000.

With 5% down, you're borrowing an extra $60,000. That means a higher monthly principal and interest payment, plus PMI on top. The total difference could be $500 a month or more compared to the 20% down version. That's not nothing. But the alternative—waiting years to save $80,000—has its own costs.

The Hidden Cost of Waiting

Chris did the math on waiting. He needed another $58,000 to hit 20%. Saving $1,500 a month—aggressively—that was over three years of waiting.

Meanwhile, the house he wanted was in a market where prices were rising about 4% a year. That $400,000 house would cost about $450,000 by the time he saved the full 20%. His target moved. The down payment goalpost moved with it.

And his rent was going up too. $1,600 a month, increasing 5% a year. Over three years, he'd spend over $60,000 on rent while trying to save for a down payment.

Is PMI Really That Bad?

PMI gets a bad reputation, and some of it is deserved. It's money you pay that doesn't reduce your loan balance or build your equity. It purely protects the bank.

But PMI isn't forever. On a conventional loan, it can be canceled once your equity reaches 20%. That can happen by paying down the balance, by your home appreciating in value, or—most commonly—a combination of both.

Let's say Chris buys at $400,000 with 5% down. His loan is $380,000. If the home appreciates at 3% a year, it'll be worth about $450,000 after five years. His loan balance will be down to around $355,000. His equity is now about $95,000 on a $450,000 home—over 20%. He can request PMI cancellation.

He paid PMI for roughly five years. At $200 a month, that's $12,000 total. But he also owned a home for five years, built equity, and locked in his housing cost. Whether that $12,000 was "worth it" depends on what would have happened if he'd kept renting and saving. For a full breakdown of how different down payments affect your total costs, check out our mortgage calculator.

Don't Forget About Closing Costs

Here's the part that catches people off guard. The down payment isn't the only cash you need at the closing table.

Closing costs typically run 2% to 5% of the purchase price. On a $400,000 house, that's $8,000 to $20,000—in addition to your down payment. These cover loan origination fees, the appraisal, title insurance, attorney fees in some states, and prepaid property taxes and insurance.

Our PITI breakdown guide walks through all the costs that make up your true monthly housing payment, including taxes and insurance that might vary based on where you buy.

When 5% Down Makes Sense

If these fit your situation, 5% down is often the bridge between renting indefinitely and actually owning. If you want to see the income side of this equation, our income guide for home buying shows you exactly what lenders look for.

When You Should Probably Wait

The FHA Alternative

If 5% down on a conventional loan still feels out of reach, FHA loans are worth understanding. They accept credit scores as low as 580 and require as little as 3.5% down.

The catch is the mortgage insurance. On an FHA loan with less than 10% down, the insurance premium lasts for the entire life of the loan. You can't cancel it unless you refinance into a conventional loan later. So while FHA makes the entry point lower, it can cost more over the long haul.

There's no universally right answer between conventional 5% down and FHA 3.5% down. It depends on your credit, your savings, and how long you plan to stay. If you're comparing the two, our FHA vs Conventional comparison goes deeper into the tradeoffs — including the MIP trap that catches a lot of buyers.

The Real Question

"Can I buy with 5% down?" is the wrong question. The answer is almost always yes, assuming reasonable credit and stable income.

The better questions are:

• Do I have enough cash beyond the down payment for closing costs and a cushion?
• Does the monthly payment — PMI included — leave room in my budget for life to happen?
• Am I planning to stay long enough for the equity to start working in my favor?

Chris closed with 5% down. His PMI is $195 a month. He knows exactly when it'll drop off, and he's watching his home value creep up. He told me the other day that his only regret was not talking to a loan officer sooner.

📊 From Our Calculator: 5% vs 20% Down — Real Numbers

These aren't estimates. Every number is calculated using MortgagePro's mortgage calculatorformula. Here's exactly how different down payments change your monthly cost on a $350,000 home:

Assumptions: $350,000 home price, 6.5% APR, 30-year fixed. Property taxes at 1% (~$292/mo), homeowners insurance at national average (~$142/mo). PMI at 0.7% of loan annually for less than 20% down.

Source: MortgagePro Calculator — try your own down payment scenario.