Yes, you can buy a house with a 5% down payment through several mortgage programs, but there are important considerations regarding loan options, costs, and qualification requirements.
Loan programs that accept 5% down payments:
- Conventional 95 loans: Fannie Mae and Freddie Mac backed conventional loans allowing 5% down on single-family primary residences
- FHA loans: Require only 3.5% down (less than 5%) for borrowers with credit scores of 580+
- VA loans: Eligible veterans and service members can qualify with 0% down
- Some state and local first-time homebuyer programs: May offer loans or assistance with 5% down or less
Additional costs with a 5% down payment:
- Private Mortgage Insurance (PMI): Required for conventional loans with less than 20% down, typically costs 0.5-1.5% of the loan amount annually
- Mortgage Insurance Premium (MIP): Required for FHA loans, includes 1.75% upfront premium and 0.55-0.75% annual premium
- Higher interest rates: Loans with lower down payments typically have higher rates than 20% down loans
- Less competitive offers: In competitive markets, 5% down offers may be viewed less favorably than higher down payment offers
Qualification requirements for 5% down conventional loans:
- Credit score: Typically 620 minimum, but 660+ for better rates
- Debt-to-income ratio: Usually capped at 43-45%, though some exceptions exist
- Income verification: Stable, documented income history
- Cash reserves: Some lenders require 2-3 months of mortgage payments in reserves
- Property requirements: Must be a primary residence (not an investment property)
Benefits of a 5% down payment approach:
- Requires less time to save for a down payment
- Allows you to enter the housing market sooner
- Preserves cash for emergency fund, moving costs, and home improvements
- May make sense in appreciating markets where waiting could mean higher purchase prices
If you’re considering a 5% down payment, be sure to calculate the total monthly payment including PMI, and compare different loan options. Many first-time homebuyers start with lower down payments and then refinance after building equity through appreciation and regular payments. Just ensure your monthly payment is comfortably affordable, as the combination of mortgage, taxes, insurance, and PMI will be higher than with a larger down payment.