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What You Should Know about Homebuyer-Prep Courses (Even if You’re a Repeat Buyer)

June 16, 2017 | By Laura Lang Haverty

Buying a home is the most expensive purchase many consumers will ever make. Beyond that, it can be a lengthy process involving many players, complex information, and unfamiliar rules.

So it's not surprising that Fannie Mae's recent study examining consumers' understanding of what's involved in getting a mortgage reveals consumers are confused by the requirements and unfamiliar with resources that can help them.

The good news is an expert guide could be a phone call away. "The availability of high-quality and independent professional housing advice through nonprofit housing counseling agencies could be the best kept secret in the industry," says Joe Weisbord, a director in Fannie Mae's Single-Family business who works on affordable housing programs.

A housing counselor works one-on-one with potential homebuyers to help them understand their housing needs, develop a realistic budget, strengthen their credit (if necessary), and prepare for the challenges and rewards of homeownership, he says.

The U.S. Department of Housing and Urban Development (HUD) oversees non-profit housing counseling agencies nationwide. Many are part of national networks like Neighborworks® America, HomeFree-USA, and the Housing Partnership Network.

Services are diverse and expanding to keep pace with the changing housing market, notes HomeFree-USA's Vice President of Affiliate Relations Simone Griffin, whose agency even purchases and rehabilitates homes to sell to qualifying clients.

Why Not Ask for Help?

These organizations are showing value, as seen in a study of more than 18,000 consumers who sought counseling through NeighborWorks America's network of agencies prior to buying their home. The study found that one-third of these consumers were less likely to become 90 days or more delinquent two years after obtaining a mortgage compared to similar borrowers who did not receive counseling prior to getting their mortgage.

Yet, only five percent of respondents to the Fannie Mae survey cited nonprofit housing counselors as their main source for mortgage information. Nonprofit housing counselors' biggest hurdle to growth may be that consumers aren't familiar with them and what they do. Even those in-the-know may hesitate due to negative perceptions of the word counseling.

"Counseling presumes there's a problem. The audience these agencies are trying to reach is much more broad. They don't have a problem. They want to buy a house and need advice they can trust," says Danielle Samalin, president of Framework Homeownership. "We talk about homeownership advising and homeownership education to describe these resources. It's no different than working with a financial advisor to plan your retirement."

Others, especially immigrant communities, may face a language or cultural barrier, says Wayne Bell, Real Estate Commissioner for the California Bureau of Real Estate. There are resources to help ensure non-English speakers are protected, including HUD.gov that lets consumers search for agencies by language in their state.

Then there are those who don't ask for help because they may think it's too soon, and are waiting to save more for a down payment or to improve their credit score. But that's exactly when they need help, notes Marietta Rodriguez, vice president of national homeownership programs and lending for NeighborWorks America. "Reaching out to a counselor before you start to shop for a home is the best idea," she says.

What to Expect

Homebuyer courses cover basics like budgeting, credit, shopping for a mortgage, home inspections, insurance, how to work with a real estate agent, and what to expect at the closing table.

Historically these courses were taught in person, in a classroom setting. Today, housing counseling agencies are taking more innovative approaches, and for some that means partnering with an organization like Framework to offer an online course alternative for clients who might prefer that option.

"The need for knowledge is real. Our research shows that most homebuyers have questions about the mortgage process," says Michael Hernandez, Vice President for Affordable Housing Initiatives at Fannie Mae. "We believe that Framework's online course helps prepare buyers to become successful homeowners, making it a valuable feature of our HomeReady® mortgage."

Framework's survey of over 20,000 online HomeReady learners showed that 92 percent agree the course increased their understanding of buying a home. In fact, 21 percent of Framework's post-course survey respondents noted feeling confused about how to prepare financially for homeownership before taking the course and after taking the course less than 3 percent reported feeling that way.

Fannie Mae's HomeReady mortgage requires at least one borrower to complete Framework's online homebuyer course. Fannie Mae also offers closing cost incentives to first-time buyers of its HomePath properties when they complete the Framework course through its Ready Buyer™ program. Hernandez adds, "We appreciate that some homebuyers may need to work with a homeownership advisor to address their specific circumstances, which is why HomeReady’s education requirement allows for this flexibility. Ultimately we want education and counseling to occur earlier in the homebuying process, so it is more advantageous for homebuyers."

Planning Ahead

Homeownership advisors anticipate a growing need for their services. They're learning how to market their courses to reach homebuyers earlier in the process, as they start to work with lenders or real estate agents. Homeownership advisors are also working harder to measure the impact of their efforts.

Clearpoint surveys clients a year after they've received services. Seventy-five percent said they had changed their financial behaviors, and 55 percent said they improved their net worth.

"We're on the right track," says Kevin Ferguson, Clearpoint's vice president of counseling operations, who says the next challenge is creating ongoing relationships with clients who might want to refinance, move up, or downsize.

That's a challenge HomeFree-USA takes to social media and engages with financial bloggers, says Griffin. "We're reaching out to clients of all incomes, in all stages of homebuying, in the digital space to introduce them to the work we do."

"It's a heavy lift. But we have to reach them online and then convince them we have a lot to offer."

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