Low-income homebuyers can be at a disadvantage when it comes to understanding the process of buying a home and the costs and obligations that come with homeownership. While such programs are not providing direct financial assistance, homebuyer education and counseling can help people avoid financial insecurity by making sound decisions in the process of purchasing a home.
Homebuyer education typically takes the form of classes and seminars that teach buyers about various elements of home buying and ownership, such as how to obtain a mortgage, budget for mortgage payments, improve credit scores, search for a home and avoid becoming delinquent on mortgage payments and risking foreclosure.
Homebuyer counseling is typically individual coaching and advising that addresses the homebuyer’s unique characteristics and barriers to purchasing a home. The advice often focuses on credit repair, saving for a down payment and setting goals to become eligible for a mortgage and to prepare to purchase a home. Many homebuyer assistance programs require that their participants complete HUD-approved counseling before they receive their loans.
The benefits of these programs can be significant for both households and neighborhoods. Research conducted in the wake of the foreclosure crisis found that homebuyer counseling reduces the likelihood of a household becoming delinquent in its mortgage payments, reduces total debt and results in increased credit scores. By enabling households to smoothly transition into homeownership, homebuyer education and counseling can result in better outcomes for individual households and entire communities.
Communities Can Promote Sustainable Homeownership with Education and Counseling
In some communities, multiple housing counseling organizations provide varying services to different target areas, making it difficult for prospective borrowers to know where to turn first. Local governments can help by providing a single point of entry for homebuyer education and counseling or by requiring counseling in order to access certain types of loans or financial assistance programs. Other effective approaches include homeownership fairs and marketing campaigns to help interested homeowners learn about available counseling as well as online and other distance-learning approaches to reach more families, including those in remote rural areas.
Provide a highly visible, single-entry point for information about programs
Even when homebuyer education and counseling services are offered by multiple, small nonprofit organizations in a single community, families who could benefit from the classes or counseling may be unaware of where they should turn for assistance. If they are turned away by one provider, they may be unaware that other providers could assist them. State and local governments can help by creating or funding a single point of entry for information on homebuyer education and counseling in the community. Such one-stop shops make it easier for families to find appropriate services in their community and ensure that if one agency does not have sufficient resources to serve a family, they are directed to other agencies that can help. One-stop shops can be administered by a government agency or by a private nonprofit organization.
Additionally, communities can help to market homebuyer education and counseling services and ensure that one-stop shops are highly visible community resources. Even in communities with numerous housing counseling providers, many families are not aware of the benefits of homebuyer education and counseling or of their availability in the community.
Require homeownership education and counseling for certain loan or assistance programs
More families might access homebuyer education and counseling when they have a strong incentive or requirement to do so. Many states and localities require homebuyer education for homebuyers to qualify for certain forms of assistance, such as reduced-interest loans and down payment assistance. To lower the costs of buying a home, families may attend a pre-purchase class and schedule an individual session with a housing counselor.
Completing homebuyer education and counseling early in the home purchase process—before signing any contracts or commitments—can yield stronger benefits for families. If education and counseling are completed just before closing, families may be out of luck if they have already committed to a loan with undesirable terms. To ensure that families enjoy the full benefits of education and counseling, communities may want to require completion prior to families signing any contracts.
Communities that are implementing lease-purchase or other homeownership programs for reusing foreclosed properties may require prospective buyers to complete pre-purchase education and counseling to improve their chances of sustainable homeownership.
Increase access to education and counseling through expanded hours and distance-learning
States and localities can expand access to homebuyer education and counseling by ensuring that courses are available at a variety of times and locations. Offering courses on evenings and weekends can make it easier for families to fit homebuyer education into their schedules. To reach families in rural areas, some states send trained housing counselors on the road while others use technology to provide interactive distance education or offer courses online. Counseling may also be offered via telephone.
The Effectiveness of Pre-Purchase Homeownership Counseling and Financial Management Skills.
2014. By Marvin M. Smith, Daniel Hochberg, and William H. Greene. Philadelphia, PA: Federal Reserve Bank of Philadelphia.
The Benefits of Pre-Purchase Homeownership Counseling.
2013. By Gabriela Avila, Hoa Nguyen, and Peter Zorn. McLean, VA: Freddie Mac.
Building Sustainable Ownership: Rethinking Public Policy Toward Lower-Income Homeownership.
2011. By Alan Mallach. Philadelphia, PA: Federal Reserve Bank of Philadelphia.
Long-Term Affordable Housing Strategies in Hot Housing Markets.
2008. By Jesse Mintz-Roth. Washington, DC: NeighborWorks America and Cambridge, MA: Harvard Joint Center for Housing Studies.