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

July 15, 2016 | By

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 in examining consumers’ understanding of mortgage qualification criteria 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 access to credit.

A housing counselor works one-on-one with homebuyers, helping them understand their housing needs, develop a realistic budget, strengthen their credit, 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. A study of the two-year loan performance of more than 18,000 pre-purchase counseling clients from the NeighborWorks America’s network of counseling agencies found that clients who’d received counseling were one-third less likely to become 90 or more days delinquent in the two years since obtaining their loan than similar borrowers who did not receive pre-purchase counseling.

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 their relative obscurity.

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 they 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 – California Bureau of Real Estate. (Editor’s Note: HUD’s website lets consumers search for agencies by language.)

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 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 a more innovative approach, and for some that means partnering with Framework for their homebuyer education offerings (see related article on trends in online learning).

Some charge a modest fee, usually under $200, which may be paid by a referring real estate agent or lender, she notes.

More real estate professionals and lenders are encouraging their customers to get this kind of professional education and advice. “It helps increase the pool of eligible, knowledgeable homebuyers — and prepares them to succeed as homeowners,” says Anne McCulloch, senior vice president for Credit & Housing Access, Affordable Housing Initiative for Fannie Mae.

Fannie Mae requires at least one borrower on its HomeReady® mortgage to complete Framework’s online homebuyer course. “We view this as the foundation homebuyers need for success with homeownership,” says McCulloch. “Other homebuyers may need to work with a homeownership advisor to address their specific circumstances,” she adds. Fannie Mae also offers closing cost incentives to first-time buyers of its REO properties who complete the Framework course.

Lenders that offer educational resources on their website may be upping the ante with incentives. In late May, Wells Fargo announced yourFirstMortgage, an affordable mortgage product that offers a 1/8-percent interest rate reduction to borrowers who complete an education course and whose down payment is less than 10 percent.

Planning Ahead

Homeownership advisors anticipate a growing need for their services. They are learning how to market their courses so they reach borrowers early, as they start to work with lenders or real estate agents. In addition, homeownership advisors are 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 had 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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