Here’s what you need to know about the housing market and what your options are to go ahead.
Why home prices are likely to rise faster than your down payment savings
It depends on a few factors: A limited supply of apartments and a large number of motivated buyers are putting pressure on real estate prices. Low mortgage rates mean most buyers can afford to borrow more than they otherwise would, adding to the pressure and inflation driving up the cost of buying just about anything across the board.
Sellers are happy, but buyers (apart from the low mortgage rates) can find it difficult to navigate.
“The past year has been brutal, especially for first-time home buyers,” said Matt Woods, co-founder and CEO of SOLD.com.
Most experts agree that the pandemic has created a difficult market for buyers, but there are signs that things are finally cooling off. In any case, this almost straight upward trend in home prices seems pretty unsustainable.
“I think of my four children, how will my four children ever become homeowners when this is the puzzle they are faced with?” Wald says.
What To Do If Your Down Payment Savings Are Not Keeping Up
There are essentially three ways you can react when your dream home – or even a barely adequate home – is out of reach.
1. Wait for the home sales market, increase your deposit
Probably the easiest option – since it is essentially passive – is to simply wait for the market to cool down further. That way, you can increase your savings, and you may even find that house prices in your area are falling a little, which means your money is continuing to flow.
Keep in mind that there are no absolute guarantees with real estate as market conditions are constantly changing, but if you can’t afford to buy now, it’s probably not a good time to dive in.
“The most important thing at the beginning is to decide whether it is the right decision to buy a house now,” says Robert Heck, Vice President of Morty at Morty. “If you have flexibility and time, the possibilities there are a little more widespread.”
Focus your affordability calculations on your monthly expenses, not necessarily the total sales price, he says.
“This phase of home appreciation is fading,” added Woods. If you wait, you can use the time to invest money in more profitable – and admittedly riskier – funds to grow your savings faster. “
You should speak to your financial advisor about your investment options. Other short-term, high-yielding products may be available, but you should decide with someone who really knows your situation.
2. Change your start list for home searches
Another option is to change your apartment wish list. Everyone wants the best possible house in the nicest and most convenient neighborhood they can afford, but if you are a little more flexible you can get a home faster and cheaper.
My advice is starter houses are great and maybe you have to be as humble as you can swallow to get into the game, says Wood.
If you are comfortable with a starter home, or if you agree to search a larger geographic area, you will have more options and you can look for places where your savings will do a little better.
3. Tap a home assistance program or take a non-traditional approach
You may be able to benefit from homebuyer aid or some emerging businesses that offer you new mortgage opportunities.
Woods says companies like Unison help people get into homes by essentially paying everything on their behalf and taking off the mortgage once the person is in a percentage than a traditional lender when you eventually refinance or sell.
“There are so many different routes you can go, so try to find your way around as many as you can,” says Heck. Your research will help you find the best course for your own situation.
More traditional ways of assisting with down payments are:
- FHA loans that can be secured with as little as 3.5 percent down.
- VA loans that can be a great deal for active or retired military personnel and their families.
- Local and national programs for first-time home buyers.
Also, keep in mind that many lenders allow you to secure a loan with less than 20 percent off. You may have to pay for private mortgage insurance until you build more equity, but if you can afford the additional monthly costs, you can still move into a home if your offering is competitive.
Work with a knowledgeable real estate agent
In this highly competitive market, it is important to have a knowledgeable agent to guide you. Most sellers receive multiple offers, many of which may be above the asking price. Hence, it is important that you work with someone who really understands the market you are looking in and can help you make your offering as strong as possible, even if the prices are higher than you expected.
A good shopper can also help you tailor and adapt your search as you change your search while streamlining your budget.
© 2021 Bankrate.com. Distributed by Tribune Content Agency, LLC.