If you’re trying to break into the housing market right now, you may find that your down payment fund isn’t going as far as you thought it would. Record-breaking rises in home prices mean the targets you set to save, say, 20 percent of your expected home purchase price may no longer cut it.

Here’s what you need to know about what’s going on in the housing market and what your options are for how to proceed.

Why home prices are likely rising faster than your down payment savings

It all comes down to a few factors: limited housing supply and a huge number of motivated buyers are putting pressure on housing prices. Low mortgage rates mean most buyers can afford to borrow more than they otherwise would, which is turning up the pressure even more, and inflation is pushing buying costs up for pretty much everything across the board.

Sellers are rejoicing, but for buyers (low mortgage rates aside) it can be tough terrain to navigate.

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“This last year has been brutal, particularly for the first-time homebuyer market,” says 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 be cooling off. At any rate, this nearly straight up trajectory for home prices seems fairly unsustainable.

“I think about my four kids, how on earth will my four kids ever be homeowners if this is the conundrum they’re dealing with?” Woods says.

What you can do if your down payment savings aren’t keeping up

There are essentially three ways you can respond if your dream home — or even a barely adequate home — is out of reach.

1. Wait out the home sale market, beef up your down payment

Probably the easiest option — because it’s essentially passive — is to just wait for the market to cool down more. Doing that can give you the opportunity to boost your savings, and you may even see home prices come down a little in your area, which means your funds will go farther.

Keep in mind, there are no absolute guarantees in real estate because market conditions are always changing, but if you can’t afford to buy now, it’s probably not a good time to dive in.

“The biggest thing to start with is just to make the decision on whether now is the right decision in terms of buying the home,” says Robert Heck, vice president of mortgage at Morty. “If you have flexibility and time, the options there are a bit more widespread.”

Focus your affordability calculations on your monthly expenses, not necessarily the overall sale price, he says.

“This home appreciation phase is waning,” Woods added. If you choose to wait it out you can use the time to invest money in higher-yield — and, admittedly, higher risk — funds to boost your savings more quickly."

You should speak to your financial advisor about your investment options. Other short-term, high yield products may be available, but you’ll want to decide what works for you with someone who really knows your situation.

2. Alter your home search punch list

Another option is to change your housing wish list. Everyone wants to get the best possible house in the nicest and most convenient neighborhood they can afford, but if you can be a little more flexible, it could help you get into a home faster and more affordably.

My advice is starter homes are great and maybe you need to be as humble as you can possibly swallow just to get into the game, Wood says.”

Being comfortable with a starter home, or agreeing to look in a broader geographical area will open up more options and may let you look at places where your savings will perform a little better.

3. Tap a housing assistance program or go for a nontraditional approach

You might be able to benefit from homebuyer assistance grants or some upstart companies that offer novel ways of getting you into a mortgage.

Woods says companies like Unison help folks get into homes by essentially paying all-cash on their behalf and working out the mortgage once the person has moved in. Others strike up equity-sharing arrangements where they contribute to your down payment and then take a larger percentage than a traditional lender when you eventually refinance or sell.

“There are so many different paths you can go down, so try to verse yourself in as many of those as possible,” Heck says. Doing your research will help you chart the best course for your own situation.

More traditional routes for down payment assistance include:

  • FHA loans, which can be secured with as little as 3.5 percent down.
  • VA loans, which can be a great deal for active or retired members of the military and their families.
  • Local and national first-time homebuyer programs.

Also keep in mind that many lenders will allow you to secure a loan with less than 20 percent down. You may have to pay for private mortgage insurance until you build up more equity, but if you can afford the extra monthly cost you’ll still be able to get into a home if your offer is competitive.

Work with a knowledgeable real estate agent

In this ultra-competitive market, having a knowledgeable agent as a guide is key. Most sellers receive multiple offers, many of which may be above the asking price, so it’s important to make sure you work with someone who really understands the market where you’re looking and can help you make your offer as strong as possible, even if prices are higher than you were expecting.

A good buyer’s agent will also be able to help you figure out how to tailor your search and will be able to adapt if you change what you’re looking for as you rationalize your budget.

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