Buying a home with 5% down

Why 5% down is the sweet spot

For most buyers, 5% down is the best balance between:

• Cash preserved for emergency fund and closing costs
• PMI premium meaningfully lower than 3%
• Rate tier almost identical to 20% down at 720+ FICO (FICO credit score — the 300–850 credit score most mortgage lenders actually pull, which is often different from the score in a free credit app)
• Faster equity buildup than 3% down

On a $400,000 home, 5% down ($20,000) with PMI adds about $120/mo vs 20% down ($80,000). To recoup that $60,000 gap through PMI savings alone takes ~40 years — most buyers refinance or move well before then.

The full cash-to-close on 5% down

On a $400,000 purchase at 5% down:

• Down payment: $20,000
• Closing costs: $10,000–$15,000 (loan fees, title, escrows, prepaid taxes/insurance)
• Reserves (2 months PITI (principal, interest, taxes, and insurance — the four pieces that make up a full monthly house payment, not just the loan itself)): $5,000–$6,000

Total cash typically needed: $35,000–$41,000

Seller concessions can offset closing costs — in most conventional loans, sellers can pay up to 3% of the purchase price toward buyer closing costs. On a $400K purchase, that's $12,000, effectively cutting your cash-to-close by 30%.

When to go higher than 5% down

Bump to 10% down if: - Your PMI premium is high (~$180+/mo on $400K) - You have excess cash after 6 months reserves - You want to accelerate PMI removal by 12–18 months

Bump to 15% down if: - You're at the edge of the conforming loan limit - You want to eliminate PMI within 5 years

Bump to 20% down only if: - You have 6+ months reserves untouched after down payment - You have no high-rate debt outstanding - The market or rate environment specifically makes cash return low