Buying a Home With 5% Down (A Practical Guide for 2026)
You don’t need a massive pile of cash to become a homeowner. Buying a home with 5% down is one of the most popular ways to enter the market because it allows you to stop renting and start building equity years sooner than waiting for a 20% down payment. While it makes a home more accessible, it also changes the math of your monthly bill.
In this guide, we will break down the costs of a 5% down payment, including the mandatory insurance and the higher interest costs. We’ll show you how this choice affects how mortgage payments are calculated and provide tips for managing your budget in 2026. Let’s explore if this low-down-payment option is right for you.
The Big Benefit: Entering the Market Sooner
The primary reason for buying a home with 5% down is speed. In a rising housing market, waiting years to save $80,000 for a 20% down payment might mean the house you wanted now costs $100,000 more. By putting 5% down ($20,000 on a $400,000 home), you lock in today’s price and start your journey toward being debt-free.
Because you are borrowing more money, your initial monthly progress will be slower. You can see this by looking at how amortization works—the bank will charge interest on a larger balance, meaning less of your early payments go toward the house itself.
Quick Tip: If you choose a 5% down payment, keep a “repair fund” in your savings account. Since you aren’t putting all your cash into the house at closing, you’ll have a safety net for those unexpected homeowner repairs.
Takeaway: A 5% down payment is a trade-off: you get the house today in exchange for a slightly higher monthly payment.
The Cost of PMI (Private Mortgage Insurance)
When you put down less than 20%, lenders require PMI. This is a monthly fee that protects the lender if you can’t make your payments. For most 5% down loans, this fee will be part of your monthly mortgage payment breakdown until you reach 20% equity.
The good news is that PMI isn’t permanent. As you learn how extra payments reduce interest, you can also use them to reach that 20% mark faster and delete the PMI fee from your bill forever. To see what your payment looks like without this fee, try our mortgage calculator without PMI.
Takeaway: PMI is the “price of admission” for a low down payment, but it can be removed once you build enough equity.
Real-World Example: $350,000 Home
Let’s look at the numbers for a $350,000 home with a 5% down payment ($17,500) at a 6.5% interest rate:
| Component | Estimated Monthly Cost |
|---|---|
| Principal & Interest | $2,101 |
| Taxes & Insurance (Escrow) | $450 |
| PMI Fee | $220 |
| Total Monthly Payment | $2,771 |
You can run your own custom scenarios using our Home Page Calculator to see how different rates change these totals. To learn more about our mission to provide fast, reliable data, visit our About Us page.
Frequently Asked Questions (FAQ)
Yes. Most conventional loan programs allow you to use “gift funds” from family members to cover your down payment. You will just need a “gift letter” signed by the donor to prove the money isn’t a loan that you have to pay back.
A 5% down conventional loan often has a lower monthly mortgage insurance cost than an FHA loan. Additionally, PMI on a conventional loan can be removed later, while FHA insurance often stays for the life of the loan. You can see the long-term difference in our guide on how loan term affects monthly payments.
Generally, you will need a credit score of at least 620 for a conventional 5% down loan. However, the higher your score, the lower your interest rate and PMI fee will be. If your score is over 740, buying a home with 5% down becomes much more affordable.
Have questions about your down payment options? Contact us if you have questions here.