Homebuyer Education: Why it’s Important and Where to Get It

Homebuyer Education Helps Real Estate Newbies

The move from renter to home buyer can be hugely intimidating. Not only are you preparing to drop a big cash down payment, you’re probably going to sign an enormous loan that could take decades to repay.

Yet many first-time home buyers take this step with little or no preparation all the time. A homebuyer education course is one way to ease the jitters and give you confidence to make one of life’s biggest decisions.

Thousands of organizations and companies across the country offer courses and workshops structured to prepare you for shopping the housing market. If you’re planning on using a state-sponsored down payment assistance program, taking one of these courses is often mandatory.

These programs are useful to anyone entering the real estate market for the first time, especially those who have poor credit. Some lenders require completion of a homebuyer education course before they will approve a mortgage. The classes can be completed either online or in a classroom.

A homebuyers’ workshop helps mortgage applicants become fluent in the language of real estate transactions. Such courses can often be completed in a day. Typically, a course covers budgeting, credit requirements, finding and working with a real estate agent and how to shop for a mortgage. It also instructs potential buyers about requirements for home inspections, homeowner’s insurance and closing costs.

Many courses will also help would-be buyers decide whether they’re ready to enter the housing market. Homeownership is a long-term commitment and knowing when you’re ready to take it on is critical. The course will examine the pros and cons of ownership and, even more importantly, what it takes to get a mortgage and how to pick a lender.

Lindsay Moore, spokesperson for the nonprofit NeighborhoodWorks America, a Congressionally chartered advocate for affordable housing, said homebuyer education and counseling is a good way for people to prepare for one of life’s biggest choices.

“NeighborhoodWorks America wants to ensure people have the tools and resources they so they are informed consumers from the moment they consider owning a home,” Moore said. “The organization wants homeowners to make the right choice – not just any choice – when pursuing homeownership.”

Creditworthiness and Home Buying

Wanting a home and being ready to buy one are different.

Before starting a home search, prospective buyers need to honestly review their readiness: Is your credit in good shape? Have you saved enough for a down payment? Are you prepared for all the not-so-obvious costs, like homeowner’s insurance, property taxes and household maintenance expenses?

A buyer’s workshop will acquaint you with all the financial considerations.

Budgeting and saving are the first step and can take a while, especially when you’re starting out in life. Recent college graduates often have student loans to pay off and entry-level wages at their jobs. Preparing for a home purchase requires building a nest egg that can be applied to a down payment. The larger the down payment, the smaller the interest on your mortgage and the lower your monthly payment.

How Much Home Can You Afford?

Learning about saving money dovetails into another issue: How much home you can afford?

The homebuyer course should cover the relationship between income and housing costs, cautioning buyers to consider all the expenses that might create financial stress.

Many people hoping to buy a home begin their search with a potential disqualifier – a poor credit history. The homebuyers’ course will explain how failure to pay credit-card bills on time can lower a loan applicant’s credit score and lead to a mortgage-loan denial.

Enrolling in a workshop will help you identify credit problems and how to discuss your credit with a lender. It will also teach you to approach your credit history the way a lender would, so that you can better decide what sort of loan you might qualify for and how to ask questions about the criteria lenders use to evaluate your eligibility.

Unfortunately, many prospective homebuyers don’t sign up for a workshop until they already have found a property and applied for a mortgage. Even at that point, the information is valuable, but it would have been much more useful if they have taken the course before house hunting.

If you take a course before you start house-hunting and learn that you have issues that might make it difficult to obtain a mortgage, the course can lead to credit counseling.

Where Can I Find a Homebuyer Education Course?

There are many courses available, and they can be found online or through government housing agencies. Some are free, while others are available for a fee that typically ranges from $75 to $100. You should take the course from an agency or nonprofit company that has approval from the U.S. Department of Housing and Urban Development (HUD), which can provide a list of approved instructors in your area or online.

Some lenders require completion of a homebuying course before reviewing you mortgage applications, and they will almost certainly want a certificate of completion for a HUD-approved agency.

Courses can be completed in as little as four hours, though six to eight hours is more common. The speed at which you go through the material will probably reflect how familiar you are with real estate transactions. Some enrollees will discover they have financial issues that might require additional counseling, a service many homebuyer educators provide.

Why Take Homebuyer Workshop?

Knowledge is a good thing, and the more you know about the homebuying process, the more smoothly it will go for you.

NeighborhoodWorks Amerca, a nonprofit organization specializing in community development and homeownership, endorses the courses for anyone entering the housing market.

“We want to make sure that people have the proper tools and resources so that they are fully informed when the try to buy a home,” NeighborhoodWorks’ spokesperson Moore said. “A HUD certified course can give that to them.”

Some mortgage lenders require homebuyer education before they will consider a mortgage loan application. Fannie Mae, the giant federally chartered mortgage buyer, requires completion of a homebuyer education course to be eligible for down payment assistance programs. Though Fannie Mae isn’t a mortgage broker, it buys loans generated by banks and brokerages. For that reason, lenders often follow its guidelines.

HomeTrek, a nonprofit unit of InCharge Debt Solutions, offers an online homebuying course that covers such topics as:

• The pros and cons of homeownership
• Credit reports and how they’re scored
• How to improve your credit for homeownership
• Disputing information on your credit report
• Budgeting and saving for a home
• How much home can you afford?
• Resources for homebuyers
• Who’s who in the buying process (inspectors, appraisers, Realtors)
• Mortgages
• New responsibilities of homeownership

HomeTrek completes its course with a test. Those who pass with a grade of 70% or higher receive a certificate of completion, which can be used to help obtain a mortgage, sometimes at a lower rate than might otherwise be available.

Most courses offer tips on buying property with another person, where to get down payment assistance and costs you’ll incur when closing on a property.