Is 10% Down Your Secret Weapon to Buying a Home?
Thinking about homeownership but stuck on the 20% down? Could putting 10% down be your path forward?
Thinking about putting down roots? Maybe things are stable at work or you’re growing a family. Maybe you just want a place of your own. But navigating the world of homeownership as a HENRY [High Earner, Not Rich Yet] comes with unique challenges. That 20% down payment rule can feel like a mountain, especially in a city where even a closet-sized apartment rivals the cost of a private plane. But what if there was a way to unlock your dream home sooner? Is 10% down your secret weapon to conquering the real estate market? Let's find out.
The 20% Myth
We all know the drill. You want to buy a place, the bank wants 20% down. We’ve all heard the 20% down payment gospel, but you know how we feel about old-school financial advice. For high earners who are juggling multiple financial goals, clinging to that outdated rule could mean missing out on other opportunities.
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3 Reasons Why 10% Is The Sweet Spot
10% can be a sweet spot because it allows you to keep more cash liquid for other investment opportunities, navigating the unexpected and outsmarting the system so you can get into your home sooner. Here’s why.
Opportunity Cost
Every dollar counts when you're building your net worth. That extra 10% you're not locking into a down payment? It's seed money for your side hustle, your investment portfolio, or maybe just a well-deserved escape from the daily grind.
Cash is King
Big city living comes with big city expenses – broker fees, movers who charge by the step, that inevitable "emergency" trip to Bergdorf Goodman. A cash cushion gives you the flexibility to keep up with the rest of your lifestyle.
PMI is Temporary
Yes, PMI exists. But guess what? It's not forever. Once you build enough equity, you can say "sayonara" to that extra cost. And in the meantime, the benefits of home ownership – and not having to deal with a landlord – often outweigh the temporary cost.
The 10% Down Payment Checklist
Sure, 10% is less than 20%. That's basic math. But that doesn’t mean as soon as you save up 10%, you’re ready to pull the trigger. Here are some signs and cash considerations that you’re a good candidate for 10% down.
Credit Score: A stellar credit score is your golden ticket to lower interest rates and better loan terms. So, keep those payments on time and that credit utilization low.
Job Security: While your city is likely a land of opportunity, make sure your income is stable enough to handle a mortgage.
Location, Location, Location: Think long-term. Is this a neighborhood you can see yourself in for at least 5-7 years? Factor in resale value and potential appreciation.
Closing Costs: Don't forget about closing costs (typically 1-3% of your home price). They can be slightly higher in major cities, so factor them into your plan.
Furnishings: That hand-me-down couch might not cut it in your new condo. Account for furniture upgrades in your overall costs.
Cash Reserves: When putting 10% down, banks sometimes want to see 12 months worth of payments on hand. Check in with your preferred mortgage lender ahead of time so you can plan accordingly.
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The Bottom Line
Building equity, enjoying potential tax benefits, and escaping the endless cycle of rent payments are compelling reasons to consider homeownership.
For high earners seeking a strategic approach, a 10% down payment can be a powerful tool. It allows you to enter the market sooner, maintain financial flexibility, and pursue other investment opportunities. Ultimately, the decision rests on your individual circumstances and goals.
Key Takeaways
A 10% down payment can be a strategic advantage for high earners, allowing them to enter the housing market sooner.
While a 20% down payment is often considered the standard, it may not be necessary, especially for those with strong financial profiles and competing investment priorities.
Before making a decision, carefully assess your financial situation, including your credit score, job security, and long-term goals.
The F. Word
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