My wife and I are getting ready to purchase our first home, we have a signed contract.

We have a total of around $25k on hand, and a relative willing to "gift" us $8k until we get our tax credit back and we should have another $2k after getting paid a few more times and paying all our monthly bills before closing. No revolving CC debt, only one auto payment on a 3 year note with under $300 monthly payment.

I have 2 agencies sitting right at 695-699, while transunion is at 752. As a result my middle score gets us a slightly higher rate.

Does it make sense to squeeze the savings, put down 20% and then sock money away again with the lower monthly payment and not paying pmi?

I can get a cheaper rate with FHA, but then I end up paying MPI. 

If we keep some money back and don't put down the full 20%, how much money makes sense? Where does the line between liquidity and equity balance?

edit - long time reader first time poster. Forgot to mention, also have the option of putting the loan just under my wife, who has scores above 740, but is that worth the quarter point of interest we pay to have me on the loan?

Have you considered a FHA 15 year fixed. With at least 10% down you are not required to pay the monthly MI; you will still have the one time  MIP charge.

Your payment will be higher than a 30 year fixed, but your rate will be much lower & you will pay down your principal balance much faster.

Putting the 20% down ? well consider what the MI would be as it relates to rate. In other words how much would the rate have to rise to equal the MI plus the lower rate per mo. Also consider with PMI you can rid yourself of it in 2 years with a 78% LTV. PMI increases in 5% increments  starting at 80.01 LTV. If you go over a 90% ltv consider FHA below 90 look at PMI.

 With your 699 fico score should be able get it raised quickly...ask your lender about rapid resolve.     

I definitely recommend at least 10% down.  If you're comfortable with a 15 year payment, then FHA will serve you best as there is no monthly Mortgage Insurance.  If you're not comfortable with the 15 year payment, then I would recommend a conventional mortgage with the mortgage insurance financed into the loan and thus no monthly private mortgage insurance payment.

In today's economy, I would personally rather have the money in the bank instead of putting the full 20% down.  Of course depends on the security of your job/employer, local economic region etc...