Getting Coached on Credit — Q&A with Rick Harper
Buying a home is a big step for anyone. But if you have a shaky credit history, ownership can seem downright unattainable.
The good news is you don’t have to go it alone, there are pros that can coach you through the process of restoring your credit standing and financing a mortgage.
“Our job as home credit counselors is to demystify this crucial transaction by educating the people who come to us so that when it comes time to buy a house, they know what questions to ask and what issues to look out for,” says Rick Harper, a senior vice president at San Francisco’s Consumer Credit Counseling Services.
Credit coaching can also help relieve stress for homeowners who are struggling to maintain their homes. Fannie Mae participates in a national program involving 17 of the country’s largest mortgage servicers, covering the cost for counseling for homeowners starting their trial period.
The key is to make sure you can afford your home over the long term, says Harper, who spoke with The Home Story about how credit counseling can help homeowners manage and finance their house in a sustainable way:
The Home Story: As a credit counseling professional, what are some issues you help homeowners work through?
Rick Harper: We have a very active program that includes some 16 hours of education, which tries to get people to make the right decision regarding what will likely be their largest financial transaction ever.
One of the first things we teach potential homebuyers is whether they can actually afford a mortgage. The affordability issue boils down to a potential homeowner’s general spending habits. A lender looks at more general factors – credit score, salary, past credit history – and, based on this general overview, could hypothetically approve a $500,000 loan. However, that does not take into account a person’s day-to-day personal finance habits, and so in no way does that mean a person can actually afford that loan. That’s why before even shopping around for a mortgage, we counsel individuals to draft a detailed personal budget so they can figure out what type of home loan they can actually afford.
THS: How does the education dispensed by credit counselors help aspiring homeowners draft an accurate budget?
RH: We don’t want people to own a house and be miserable because financing it takes just about everything they earn. We avoid such traps by helping them draft an accurate and honest household budget. We do that by making the people we work with aware of all of the other expenses that come with homeownership. Hence, while they might have secured a mortgage, will they be able to put some money in a rainy-day fund every month after paying their loan’s monthly installments? Are they willing to cut down on other expenses they might have taken for granted, such as traveling or even eating out? Also, if they’ve bought into a condominium, can they pay their mortgage on top of the building’s monthly assessments and homeowners’ association dues?
THS: What else should aspiring homeowners do to figure out if they can afford a mortgage?
RH: Homeowners should ask the following three questions: The first one is obvious, but surprisingly often overlooked — do they have money saved for a down payment? The second question is about employment — have they held the same job for at least two years? Thirdly, have they seen their credit report within the last six months and addressed past delinquencies, reporting errors or any other adverse issues that could hurt their score? We typically advise potential homeowners to target a score anywhere between 680 to 760. If they score within that range, they’re in a pretty good position to secure a mortgage to buy a home. (Editor’s note: Borrowers with scores in the low 600s may also qualify, Each lending decision is based on many factors.)
THS: Do you continue to work with people once they’ve actually bought a house and have moved in?
RH: Yes, we want to stay involved long after they’ve closed on their house. We encourage people to pick up the phone and call us anytime they have a question, especially if they are about to make a decision — signing a new car lease, securing a new credit card or even refinancing their mortgage – that could impact their personal finances. Before taking on more debt, they should call a credit counselor and get an unbiased opinion about how these new financial obligations will impact their mortgage payments and home budget.
THS: So can effective credit housing counseling be as much of a money saver as capturing a low interest rate?
RH: Yes, absolutely. Most people are very reluctant to question the various costs associated with home buying. A lot of it has to do with insecurity about a process that can be intimidating for the best of us. Our job as home credit counselors is to demystify this crucial transaction by educating the people who come to us so that when it comes time to buy a house, they know what questions to ask and what issues to look out for. The education one gets with credit counseling is a real money saver over the long-term.