Can You Buy a House With Just a 5% Deposit?

Yes, buying a house with a 5% deposit is realistic through several standard mortgage programs. Conventional loans backed by Fannie Mae and Freddie Mac go as low as 3% down, and FHA loans start at 3.5%, so 5% clears both minimums with room to spare.¹² The catch most first-time buyers miss is that the deposit is only part of the cash you’ll hand over at closing, and a 5% down payment locks in mortgage insurance that can cost you for years.

Which Mortgage Programs Accept 5% Down

Conventional Loans

Conventional mortgages are the most common route for 5%-down buyers. Fannie Mae and Freddie Mac both offer 97% loan-to-value options, meaning the lender finances up to 97% of the home’s value.¹ These have to be fixed-rate loans with terms up to 30 years, secured by a one-unit primary residence.³

One condition matters here. The standard 97% LTV purchase loan requires at least one borrower to be a first-time homebuyer, defined as someone who hasn’t owned residential property in the past three years. Fannie Mae’s HomeReady program also allows 3% down and drops that restriction, though if every borrower on a HomeReady loan is a first-time buyer, at least one has to complete a homeownership education course before closing.³⁴

FHA Loans

Loans insured by the Federal Housing Administration require a minimum down payment of 3.5% of the home’s adjusted value, so 5% easily qualifies.² FHA appeals to buyers with lower credit scores. A score of 580 clears you for the 3.5% minimum; scores between 500 and 579 require at least 10% down. The tradeoff is FHA’s mortgage insurance rules, which are harsher at a 5% deposit than conventional PMI.

If You Qualify, You May Not Need 5% at All

Two government-backed programs can take you to zero down. VA-backed purchase loans, available to qualifying veterans, active-duty service members, and surviving spouses, often require no down payment and carry no mortgage insurance requirement.⁵ USDA guaranteed loans offer 100% financing when your household income doesn’t exceed 115% of the area median and the home sits in an eligible rural area.⁶ If either fits, keeping the 5% in reserve for closing costs and moving expenses may serve you better than putting it toward the purchase.

The Cash You Need on Top of the 5%

Closing costs generally run 2% to 5% of the purchase price.⁷ On a $350,000 home, that’s another $7,000 to $17,500 on top of the $17,500 deposit. Plan for the higher end until you’ve seen your actual numbers.

Typical charges include:

Loan origination fee, which is what the lender charges to process the mortgage
Appraisal fee for a professional valuation of the property
Title insurance protecting you and the lender against ownership disputes
Prepaid property taxes and homeowner’s insurance, since lenders often collect several months upfront to fund an escrow account
Recording fees charged by the local government to record the deed and mortgage
Credit report fee

You’ll get a Loan Estimate within three business days of applying, and a Closing Disclosure at least three business days before closing so you can compare final numbers to what you were originally quoted.⁸ Certain late changes, such as the APR becoming inaccurate or a prepayment penalty being added, trigger a new three-business-day waiting period before closing.

Mortgage Insurance Is the Real Long-Term Cost of 5% Down

Anything less than 20% down means paying mortgage insurance, and the type you get depends on which loan you choose. This is where a 5% deposit costs you the most over time, so it’s worth understanding the rules before you commit to a program.

Private Mortgage Insurance on Conventional Loans

Any conventional loan below 20% down requires private mortgage insurance, which protects the lender if you default.⁹ The annual cost typically runs 0.5% to 1.5% of the loan amount, split into monthly installments added to your mortgage payment. A higher credit score pushes your premium toward the lower end.

Conventional PMI is not permanent. Under the Homeowners Protection Act, you can request cancellation once your loan balance reaches 80% of the home’s original value through scheduled payments, extra principal, or both. You have to be current on payments, and the lender may require confirmation that the property’s value hasn’t declined. If you never request cancellation, PMI drops off automatically when your balance is scheduled to hit 78% of the original value.¹⁰

FHA Mortgage Insurance Works Against You at 5% Down

FHA insurance has two parts. Upfront MIP is 1.75% of the base loan amount, due at closing; most borrowers roll it into the loan balance.¹¹ Annual MIP is an ongoing premium paid monthly; on a 30-year FHA loan with 5% down and a base amount at or below $726,200, the annual rate is 0.55% of the loan balance.

Here’s the trap for a 5%-down FHA borrower. Because your starting LTV is above 90%, annual MIP stays on for the full life of the loan or 30 years, whichever comes first.¹² You cannot cancel it by building equity, the way you can with conventional PMI. The only way out is to refinance into a conventional loan once you have enough equity, typically 20%, and a credit score that qualifies. Had you put down at least 10% on the FHA loan, annual MIP would drop off after 11 years. At 5% down, that shorter timeline doesn’t apply.

Weigh this carefully. A buyer with a credit score of 620 or higher can often pay less over time with a conventional loan and cancellable PMI than with an FHA loan whose insurance never goes away.

What You’ll Need to Qualify

Credit Score

Conventional mortgages generally require a minimum credit score of 620.¹³ Higher scores unlock better interest rates, which compound into real savings across a 30-year loan. FHA is more forgiving: 580 gets you the 3.5% down payment, and scores as low as 500 are accepted with 10% down.

Debt-to-Income Ratio

Your debt-to-income ratio (DTI) measures how much of your gross monthly income goes to debt payments including the new mortgage. For conventional loans run through Fannie Mae’s automated underwriting, the maximum DTI is 50%.¹⁴ Manually underwritten conventional loans cap at 45%.¹³ FHA benchmarks are 31% for housing alone and 43% for total debt, though lenders can approve higher ratios if you have compensating factors like at least three months of mortgage payments in reserves after closing.¹⁵

Income and Employment

Lenders want to see a consistent two-year work history. You’ll provide W-2 forms covering the most recent one to two years and a pay stub dated no earlier than 30 days before your application.¹⁶ Self-employed borrowers should expect to hand over tax returns and profit-and-loss statements covering the same window. With only 5% down, expect closer scrutiny of income stability, because the lender is carrying more of the risk.

Where the 5% Can Come From

Not every dollar of your deposit has to come from years of savings. Both conventional and FHA programs allow some or all of the down payment to come from gift funds, though documentation is strict.

For personal savings, lenders review at least 60 days of bank statements. Money that has been in your account for more than 60 days is treated as seasoned and needs little explanation. Any large deposit within that window, whether a bonus, tax refund, or cash from selling a car, needs a paper trail showing where it came from.

If a family member is helping, the lender will require a signed gift letter that includes:

The dollar amount of the gift
A statement that no repayment is expected
The donor’s name, address, phone number, and relationship to you

The lender also has to verify that the donor actually had the funds, usually through the donor’s bank statement or evidence of the transfer.¹⁷ The donor cannot be anyone involved in the transaction, including the seller, builder, or real estate agent.

A 5% deposit gets you into a home, but it isn’t the only number that matters. Build your budget around the deposit plus closing costs plus the monthly mortgage insurance you’ll be paying until you either hit 20% equity on a conventional loan or refinance out of an FHA loan. That fuller picture is the one that tells you whether buying now, at 5% down, actually works for your finances.

1
Fannie Mae. 97% Loan to Value Options
2
U.S. Department of Housing and Urban Development. What Is the Minimum Down Payment Requirement for FHA
3
Fannie Mae. FAQs: 97% LTV Options
4
Fannie Mae. HomeReady Mortgage
5
Veterans Affairs. Purchase Loan
6
Rural Development, U.S. Department of Agriculture. Single Family Housing Guaranteed Loan Program
7
My Home by Freddie Mac. What Are Closing Costs and How Much Will I Pay
8
Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs
9
Consumer Financial Protection Bureau. What Is Private Mortgage Insurance?
10
Office of the Law Revision Counsel. 12 USC 4901 – Definitions
11
U.S. Department of Housing and Urban Development. Mortgagee Letter 2023-05
12
U.S. Department of Housing and Urban Development. Revision of Federal Housing Administration (FHA) Policies Concerning Cancellation of the Annual Mortgage Insurance Premium (MIP)
13
Fannie Mae. Eligibility Matrix
14
Fannie Mae. Debt-to-Income Ratios
15
HUD. Section F – Borrower Qualifying Ratios Overview
16
Fannie Mae. Standards for Employment Documentation
17
Fannie Mae. Personal Gifts