A lack of savings for a down payment, credit problems, or uncertainty about the home-buying process -- such as where to find the best mortgage lender -- can all make it seem impossible to go from renter to homeowner.
Fortunately, though, there's a secret weapon that can help you surmount all these hurdles. That secret is taking a homebuyer education course, a move that has huge financial and practical benefits.
"Buying a home is a huge decision and a long term commitment," says Keosha Burns, spokesperson for Fannie Mae in Washington, D.C. "When new homebuyers complete pre-purchase homebuyer education they can be better prepared for what to expect during the purchase transaction as well as the ongoing responsibilities of homeownership."
Housing counseling can save you thousands of dollars and help you get a home sooner rather than later. So if you're thinking of buying a home in the not-too-distant future, here's what you need to know about homebuyer education courses.
Are home buyer education classes required?
Any homebuyer who takes advantage of a state-sponsored home-buying-assistance program is required to attend a homebuyer education course. Buyers should contact their state to locate an approved Homeownership Counseling Agency in their area.
HSH.com developed a nationwide database of the home buyer assistance programs available in each state. The database also provides a state-specific URL where borrowers can contact approved lenders and counselors to learn more.
Who offers home buyer education classes?
Thousands of organizations and companies across the country offer homeownership counseling in virtually every community in America. No matter where you get it, though, all pre-purchase home-buyer education and counseling must be provided by a third party that is independent of your mortgage lender.
What will you learn?
Providers of home-buyer education and counseling services must meet the standards defined by the National Industry Standards for Homeownership Education and Counseling or those of comparable quality as established by other organizations.
Broadly speaking, the standards mandate that education sessions cover:
- Assessing homeownership readiness
- Budgeting and credit
- Financing a home
- Shopping for a home
- Maintaining a home and finances
Additional home-buyer counseling sessions can also be provided on a one-on-one basis, giving customized help based on a borrower's unique financial circumstances.
What is the benefit of homebuyer education?
The chief benefit of receiving homeownership education is that you become eligible for numerous financial perks, including:
- Down-payment assistance programs
- Free grants up to $25,000 or more
- Closing-cost assistance
- Below market mortgage rates
- Mortgage loan forgiveness
When should I get homebuyer education?
Marietta Rodriguez, vice president of Homeownership Programs and Lending at NeighborWorks America in Washington, D.C., says that in a perfect world people would get homebuyer counseling prior to even looking for a home. In practice, however, most people usually enroll after they've applied for a mortgage.
"By that time, the person has already made two of the most important decisions in the process: what home to buy and what lender to use," says Rodriguez. "They can still benefit from homebuyer education. But since the financial implications of those two decisions are huge, it's better to get housing counseling in the very beginning so people go about things in a smart and informed manner."
Where do the courses take place?
Homeownership counseling most often takes place face-to-face via group education and counseling. But online and telephone counseling are also growing in popularity, Rodriguez says.
Online counseling especially gives added flexibility to people who don't have an eligible provider in their area, as well as those can't attend face-to-face sessions due to family or work commitments.
Why is homebuyer counseling sometimes required?
Under Fannie Mae guidelines, first-time homebuyers must complete pre-purchase homebuyer education and counseling for certain 3 percent down payment loans (such as the MyCommunityMortgage Loan). Counseling is required too for borrowers that are relying solely on nontraditional credit to qualify, regardless of the loan product or home-buyer status.
"Federal and state laws specifically require that counseling be provided prior to origination of certain types of loans," adds Sharon Clark, executive director of the Central Jersey Housing Resource Center in Raritan, New Jersey.
Typically anyone receiving government aid whose name will appear on a deed or on an affordable housing application must attend pre-purchase education. Upon completion, consumers receive documentation of their efforts - either a letter or a certificate that can be supplied to a lender or government agency.
How long does counseling take?
The average course can be completed in as little as four hours, though most people will take six to eight hours, often during a Saturday class.
But "some clients work with us for years to meet their goal and spend 60 to 80 hours working with us," says Clark. "Some need 10 hours while others need 4 hours. It all depends on how comfortable the prospective buyer is and how much information they seek on their own or how much help they want from our agency/counseling team."
How much does a homebuyer education course cost?
Under industry guidelines, all fees charged for homeownership counseling or education must be "fair, reasonable, and commensurate with the level of services provided." Clients must also be advised of the amount of fees prior to the delivery of any service.
Rodriguez says that many homebuyers will be able to find free programs. Among those programs that charge for their services, the normal range is between $25 and $125, she adds.
That's a drop in the bucket, of course, compared to the financial benefits of counseling - including free aid worth thousands of dollars.
More help from HSH.com
The return of subprime lending?Nontraditional mortgage products, often blamed for their role in their housing crisis, are starting to make a comeback.
HSH.com on the latest move by the Federal ReserveThe Federal Reserve concluded a meeting today, raising the target range for the federal funds rate to 2 to 2.25 percent.
10 metros where a home costs about $1,000/monthHSH.com identifies 10 metro areas where you can afford the principal, interest, taxes and insurance payments on a median-priced home for only around $1,000 per month.
The salary you must earn to buy a home in the 50 largest metrosHere’s how much salary you would need to earn in order to afford the median-priced home in your metro area.
How long do I have to own or live in my home to qualify for the capital gains tax exclusion when I sell?You can exclude capital gains on the sale of your primary residence if you meet the IRS's ownership and use requirements.