If you’re trying to break into the housing market right now, you might find that your down payment isn’t going as far as you thought. Record hikes in home prices mean that the goals you set for saving, say, 20 percent of your home’s purchase price may no longer reduce it.
Here’s what you need to know about what’s going on in the housing market and what your options are for proceeding.
Why home prices are probably rising faster than your down payment savings
It all comes down to a few factors: the limited supply of housing and a large number of motivated buyers are putting pressure on house prices. Low mortgage rates mean most buyers can afford to borrow more than they otherwise would, further increasing the pressure, and inflation is pushing up buying costs for just about everything in everyone. domains.
Sellers rejoice, but for buyers (aside from low mortgage rates) it can be difficult to navigate a lot.
âThis past year has been brutal, especially for the first-time home buyer market,â said Matt Woods, co-founder and CEO of SOLD.com.
Most experts agree that the pandemic has led to a tough market for buyers, but there are signs that things may finally calm down. Either way, this almost straight path for house prices looks pretty unsustainable.
“I think of my four children, how on earth will my four children be able to become owners if this is the riddle they are faced with? Woods said.
What you can do if your down payment savings aren’t keeping up
There are basically three ways to react if your dream home – or even a barely adequate home – is out of reach.
1. Wait until the door-to-door sales market ends, increase your down payment
The simpler option, since it is essentially passive, is probably to wait for the market to cool down further. This can give you the opportunity to increase your savings, and you may even see house prices drop a bit in your area, which means your funds will go further.
Keep in mind that there are no absolute guarantees in real estate as market conditions are constantly changing, but if you can’t afford to buy now, it probably isn’t a good time. to dive.
âThe most important thing to get started is just making the decision whether now is the right decision to buy the home,â says Robert Heck, vice president of mortgages at Morty. âIf you have the flexibility and the time, the options are a bit more extensive. “
Focus your affordability calculations on your monthly expenses, not necessarily the overall selling price, he says.
Bankrate’s “How Much Home Can I Afford?” Â»Calculator can help you get started.
âThis phase of home appreciation is waning,â added Woods. If you choose to wait, you can use the time it takes to invest money in higher yielding – and admittedly higher risk – funds to grow your savings faster.
âPutting money under your mattress isn’t going to help you,â he says. âIf you park him in the safest place, you can count on him to not help and grow. If you take advantage of the investment opportunities that are out there, the market has been lenient.
Since the investment market is so dynamic right now, you may even be able to quickly increase your savings with higher risk options. But let’s be clear, the money you need in one to three years is not best suited for riskier investments. That said, if you can take more risk, consider investing some of your down payment in:
- Stocks, which are arguably the most traditional investment tool and can produce big returns quickly if you buy the right ones at the right time.
- Cryptocurrency, which sort of has a moment in the investment realm right now. Keep in mind that crypto valuations have been a bit of a roller coaster, so you could dramatically increase your savings or lose your shirt.
You should talk to your financial advisor about your investment options. Other short-term, high-yielding products may be available, but you’ll want to decide what’s right for you with someone who really knows your situation.
2. Edit your home search checklist
Another option is to edit your Housing Wish List. Everyone wants to get the best home possible in the nicest, most convenient neighborhood they can afford, but if you can be a little more flexible about exactly where to land, it might help you get into. a home faster and at a more affordable price.
âThe American dream is so grand, ‘I must own my home forever,'” said Woods. “My advice is that the starting houses are great and maybe you need to be as humble as possible just to get into the game.”
Being comfortable with a home from home or agreeing to look in a larger geographic area will open up more options for you and perhaps allow you to look for places where your savings will perform a little better.
âTry not to get caught up in the exuberance of buying the house, chasing the offer,â Heck says. âSlowing down is important here. “
3. Support a housing assistance program or take a non-traditional approach
You may be able to benefit from home buying grants or some start-up businesses that offer new ways to get a mortgage.
Woods says companies like Unison help people move into housing by essentially paying cash on their behalf and paying off the mortgage once the person has moved in. percentage than a traditional lender when you refinance or sell.
Plus, Woods added, you can always go the âmake a deal with your rich uncleâ route, if you have the chance.
âThere are so many different paths you can take, so try to familiarize yourself with as many as possible,â Heck says. Doing your research will help you chart the best course for your own situation.
More traditional avenues for down payment assistance include:
- FHA loans, which can be secured with as little as 3.5% down payment.
- VA loans, which can be very beneficial for serving or retired military personnel and their families
- Local and national first-time home buying programs
Also keep in mind that many lenders will allow you to get a loan with less than 20% down payment. You may need to pay for private mortgage insurance until you build up more equity, but if you can afford the extra monthly cost, you can still move into a home if your supply is competitive.
Working with a knowledgeable real estate agent remains crucial
In this ultra-competitive market, having a knowledgeable agent as a guide is essential. Most sellers receive multiple offers, many of which may be above the asking price, so it’s important to make sure you’re working with someone who truly understands the market you’re looking in and who can help make your offering this solid. as possible, even if the prices are higher than expected.
A good buying agent will also be able to help you determine how to tailor your search and will be able to adapt if you change what you are looking for as you streamline your budget.
At the end of the line
With home prices being pushed up rapidly by multiple aggravating factors, it is a difficult market for buyers. But that doesn’t necessarily mean that it’s impossible to buy; it may just take a little more strategy. Or, you can take a break and come back when the market has cooled down a bit.