Five percent down sits in an odd spot. It isn’t the rock-bottom 3% you’ve read about, and it’s nowhere near the 20% your uncle keeps insisting is mandatory. On a $400,000 house it means $20,000 cash instead of $80,000, which for most first-time buyers is the difference between buying this spring and buying in 2029.
Here’s the part that surprises people: 5% down is the standard floor for most conventional programs, not a special exception. Fannie Mae and Freddie Mac both buy loans at 95% loan-to-value every day. You don’t need perfect credit, you don’t need to be a first-time buyer, and you don’t need a down payment assistance program to make it work.
What a 5% down conventional loan actually is
Conventional means the loan isn’t insured by the FHA or guaranteed by the VA. It’s underwritten to Fannie Mae or Freddie Mac guidelines, then sold into the secondary market. That structure is why the rules feel both flexible and oddly specific.
A few things define the 5% tier:
- Occupancy: one-unit primary residence gets the 5% treatment. A second home typically needs 10% down, and a one-unit investment property needs 15%.
- Loan limit: the loan itself has to fit under the conforming limit, which is $806,500 for a single unit in most of the country in 2025. High-cost counties run higher.
- Property type: condos need to be on an approved list. Non-warrantable condos and some rural properties get bumped to other programs.
- Mortgage insurance: required above 80% LTV. More on that below, because it’s where the real cost hides.
Worth knowing that 5% isn’t actually the lowest conventional option. Fannie Mae’s 97% LTV program and Freddie’s Home Possible both reach 3% for qualifying buyers, and there are real tradeoffs between the tiers. If you’re weighing that, this breakdown of how little you can actually put down on a conventional loan walks through the differences in eligibility and pricing.
The four numbers underwriters look at
Credit score, and why 620 isn’t the finish line
Most lenders set 620 as the floor for a 5% down conventional loan. Getting approved at 620 and getting a good rate at 620 are two very different things. Mortgage insurance pricing moves in tiers, and the gap between a 640 and a 760 score can be several hundred dollars a month on the same house.
If your score is sitting in the low 600s, spending 60 to 90 days paying down a revolving balance or disputing a reporting error often pays for itself many times over. Our guide to the credit score you actually need for a conventional loan breaks down where each tier lands on pricing.
Debt-to-income ratio
The standard ceiling is 45%, with automated underwriting approving up to 50% when reserves are strong and credit is clean. Your new payment includes principal, interest, property taxes, homeowners insurance, HOA dues and mortgage insurance. A $380,000 loan at 6.5% is roughly $2,402 a month before taxes and insurance, so add maybe $500 to $700 depending on where you live.
Reserves
At 95% LTV with a solid score, reserves requirements are usually zero to two months of payments. Two months on that payment above is about $6,000, and it can typically sit in a retirement account rather than checking.
Where the down payment comes from
Gift funds are allowed for the entire down payment on a one-unit primary residence. You’ll need a signed gift letter and a paper trail showing the money moving from the donor’s account. Seasoned savings, sold stock and documented withdrawals are all fine. Cash in a shoebox is not.
What the mortgage insurance really costs
This is the number that decides whether 5% down makes sense. On a $400,000 purchase with 5% down, you’re borrowing $380,000 at 95% LTV.
Borrower-paid monthly mortgage insurance at that LTV runs somewhere around 0.36% to 0.90% of the loan annually, depending almost entirely on credit score. Do the math and it lands between roughly $114 and $285 a month. A buyer with a 760 score pays closer to the low end; a buyer at 660 pays something closer to the high end.
The good news is that conventional mortgage insurance is temporary. You can request removal once your loan balance hits 80% of the original value, and it terminates automatically at 78% based on the original amortization schedule. On a 30-year loan with normal payments that’s roughly seven to nine years away, sooner if you make extra principal payments or the market moves.
FHA is the contrast worth understanding. FHA mortgage insurance has an upfront fee of 1.75% of the loan plus an annual premium, and with 5% down that annual premium generally stays for the life of the loan. On a $380,000 base loan, the upfront fee alone is about $6,650 added to your balance. There’s a full walkthrough of what that 1.75% upfront FHA fee really costs you if you’re comparing the two side by side.
5% conventional versus 3% conventional versus FHA
- 5% conventional: 620 minimum score, no upfront mortgage insurance fee, PMI cancellable, gift funds allowed, DTI up to 50%.
- 3% conventional: usually restricted to first-time buyers or income-capped programs like HomeReady and Home Possible, stricter debt-to-income rules, slightly higher pricing at 97% LTV.
- FHA at 3.5%: 580 minimum score with 3.5% down, more forgiving on credit history and DTI, but permanent mortgage insurance and a stricter appraisal process.
The 3% conventional route is genuinely worth checking if your income falls under the program limits. Here’s who actually qualifies for a conventional loan with 3% down and what it costs once mortgage insurance is factored in.
Cash to close is more than the down payment
Budget 2% to 5% of the purchase price for closing costs. On a $400,000 home that’s $8,000 to $20,000, covering lender fees, title insurance, appraisal, recording fees and prepaid taxes and insurance. You’ll also need escrow deposits for your tax and insurance accounts, which can add a couple thousand dollars depending on when in the year you close.
Sellers can contribute toward these costs, typically up to 3% of the price at 95% LTV, 6% at 90% and above, and 9% below 75%. In a slow market that concession is negotiable and worth asking for before you start arguing about the sale price.
Speeding up the day the PMI disappears
Three realistic paths get you out of mortgage insurance early:
Pay down to 80%. Request removal in writing once your balance hits 80% of the original value. Lenders will want a satisfactory payment history, and some require a new appraisal you pay for.
Use appreciation. If home values in your area have climbed, a new appraisal can document that you’re under 80% LTV well before your balance gets there. This only works with the lender’s approval for conventional loans, but it works often enough to ask.
Refinance. Once you have 20% equity, a refinance drops the insurance entirely. It only makes sense if rates are at or below your current rate, or if the monthly savings beat the closing costs within a couple of years.
The details that quietly kill 5% down approvals
Student loans in deferment still count against your debt-to-income ratio at 1% of the balance or the scheduled payment, whichever the lender’s guidelines require. Self-employed buyers need two years of returns showing the income holds up after deductions. A co-borrower who isn’t on the title can create occupancy problems. Large undocumented deposits get flagged during underwriting, so keep a paper trail for anything unusual going back 60 days.
Get a full pre-approval rather than a pre-qualification before you start touring houses. A pre-approval means an underwriter has already looked at your income documents, assets and credit, and it turns a 5% down offer into something a seller will actually take seriously in a competitive market.