Please help me get this Homing Sequence Right

Doesen't this part of the manual say to set
HOME_IGNORE-LIMITS to YES if you are not using separate Home and Limit switches?

6.4. HOME_IGNORE_LIMITS

Can hold the values YES / NO. The default value for this parameter is NO. This flag determines whether LinuxCNC will ignore the limit switch input for this joint while homing. This setting will not ignore limit inputs for other joints. If you do not have a separate home switch set this to YES and connect the limit switch signal to the joint home switch input in HAL. LinuxCNC will ignore the limit switch input for this joint while homing. To use only one input for all homing and limits you will have to block the limit signals of the joints not homing in HAL and home one joint at a time.

Now I'm confused too. Should the machine stop at the limit switch or not?
And index pulse = Z Phase encoder.
The zero mark on your encoder and there is only once per turn. Check in halshow
Is it also wired?

Of course it should stop on the limit switch no one wants a crash.
So in halshow I watch: hm2_5i25.0.encoder.00.input-index
while manually jogging the axis and it just stays on a red indicator.
Do all encoders have this index mark?

Based on your first post it sounds like you do not have homing switches anywhere. Just limit switches on each end and you want to use one of the limit switches to home the machine. This is a perfectly fine setup but the limit switches need to be ignored during the homing process. Otherwise it will fault at the switch.

You only want to have that setting set to no if you have 3 switches per axis (for argument sake). If your axis setup looked like this:

Limit>>>>>>>>>home>>>>>>>>>limit

As for the index, depending on setup, the axis will go to home switch then go forward or backward (based on settings) to the next Z pulse. There is one z pulse per revolution.

Yes.
another idea if you wire your limit switch to second input you have limit and reference switch in one.

Use home ignore limits that will ignore the limit switch that is shared with home switch while homing.

INI FILE:
HAL File:
When homing this will ignore the limit switch and use it for home switch. Then offset off of it for HOME_OFFSET=.5

Then it will work.

/EDIT: HOME_SEARCH_VEL should not be 0 neither should HOME_LATCH_VEL