As Joel said, a 403(b) is only a vehicle, and the funds inside it can be invested in anything (index stock fund, dividend mutual fund, bond fund, etc.)
However, I'm surprised that you can only contribute 5% to your 403(b). Your matching may be maxed out at 5%, but I don't recall any rules that would supersede the IRS-imposed $17,500 / year maximum contribution to your 403(b). You might want to ask your HR department to double-check that limit -- it seems strange. Also, you may want to check and see if you have access to a 457(b) plan, which is often available to folks who have a 403(b). [For those who don't know, a 403(b) is basically the public-sector/non-profit (non-Federal) version of a 401(k).]
That being said, if you're saving up for a downpayment within the next 5 years or so, even an index stock fund may be too risky for you. Stock index funds are great over a period of 7+ years, but you have to be ok with the fact that they may fall 50% or more within a year. My suggestion is that you go for a very short term bond fund (VFSTX), or a dividend-focused index fund for the short run (dividend-focused funds tend to hold their value better in a down market). If you're looking to buy a house in the next 6-12 months, a money market fund might allow you to sleep better at night (since the amount of interest that you'll gain in a short-term bond fund/dividend mutual fund will be minimal in that time period).