The Homebuyer Scene. A Little Schooling Goes A Long Way for Homebuyers
Homebuyer Education Courses Train Buyers to Find Affordable Loans, Too
Obtaining an affordable mortgage is an art, not a science – especially for first-time buyers – and is just as important as finding an affordable house.
Fortunately, homebuyer education – learning how to cover your down payment and closing costs, in particular – can provide real traction toward financing your first home. Moreover, you can save thousands of dollars in lenders’ fees if you mind the wise words of the old Smokey Robinson song “Shop Around.”
Taking a class for a few weeks is an excellent way for first-timers to learn about credit and mortgages. On certain types of loans, homebuyer education is a requirement. And repeat buyers could learn a lot, as well – especially if they haven’t been in the market for some time.
Marisa Calderon, executive director of the National Association of Hispanic Real Estate Professionals, sees a little schooling as useful across the entire spectrum of buyers.
“Education is helpful regardless of anyone’s financial situation, especially when it comes to the nuances of managing homeownership,” she said.
Counseling Often Required, but Helpful. The big mortgage agencies like Freddie Mac and Fannie Mae often require homebuyer education to qualify for specialty loan programs. With Fannie’s HomeReady, designed for low-income borrowers, completing the course gives qualified buyers a shot at financing with just 3 percent down – a far cry from the 20 percent many loans require.
Homebuyer education programs vary, but they have some common traits. They teach students the ins and outs of credit scores, as well as how and when to pay bills, balance a checkbook, save money and live within their means.
Classes also cover how to manage student loans and other debt; the value of nontraditional forms of credit, such as timely rent payments, cellphone bills and utility bills; and overcoming a reluctance to use credit cards to establish and build credit records.
Far from being just for first-timers, counseling benefits homeowners at all stages. For example, seniors looking to access the equity they’ve built in their homes through reverse mortgages are required to visit a counselor by the Federal Housing Administration, which insures the bulk of these loans.
Even proprietary reverse mortgages originated by lenders outside the FHA limits come with a counseling requirement; the sessions are usually handled by the same counselors who work on government-insured Home Equity Conversion Mortgages.
Too Few Know About Assistance Programs. Low-down payment loans or loans that come with some form of assistance are really where the rubber meets the road. For example, the congressionally chartered nonprofit NeighborWorks America has just unveiled a program for Alaska residents who earn 100 percent or less of the median income in their areas. It offers a $10,000 forgivable loan for buyers who successfully complete an educational component.
“A knowledgeable borrower is a sustainable borrower,” said Stephen Barbier, the relationship manager at NeighborWorks.
“Homebuyer education and counseling create knowledgeable buyers, who save money through awareness of affordable loan products and down-payment assistance, he said. “[It also helps buyers] understand the rights and responsibilities of homeownership, and ensures they have a trusted adviser to turn to with questions.”
The number of buyers receiving such aid recently doubled, according to Freddie Mac. In a survey by Freddie Mac and Down Payment Resource, which tracks programs available in every state, 5 percent of respondents reported receiving a loan or assistance from either a nonprofit or a government program in 2013. By 2016, that figure increased to 10 percent.
There’s quite a bit of help available, if you know where to find it. Of the 2,500 homeownership programs in DPR’s database, 83 percent had down-payment funds available at last count.
Yet DPR’s Rob Chrane said the availability of assistance is not as well-known as it should be.
“Research and data show there is a wide gap between consumer perception of what it takes to buy a home and what it really takes,” he said. “Sixty-five percent in a recent survey thought they needed 15 percent for a down payment. That’s pretty far off the mark.”
Mortgage Fees Add Up. Mounzer Aylouche, vice president of homeownership programs at MassHousing, said an assistance program his group has started has “made an indent” in affording the very pricey Boston market.
The agency offers financing with just 3 percent down to buyers with incomes at or below the median in the Boston area. Moreover, the down payment can be funded by a second mortgage of up to $12,000 at just 1 percent interest.
The program is so successful, it is being expanded to include “workforce” housing for buyers who earn more than 100 percent of Boston’s annual median income. In this case, a 2 percent loan of up to $15,000 will help offset participants’ closing costs.
Another way to cut your upfront costs is to bargain with your lender about its fees. Closing costs can be daunting, but they don’t have to leave you with nothing in the bank. You can save thousands by shopping around.
Mortgage platform LendingTree reports that buyers can be saddled with as many as 16 different fees during the mortgage process. In last year’s first quarter, these charges added up to a median of $2,059 for buyers and $1,807 for owners who were refinancing.
But by shopping lenders – or by using some good old-fashioned jawboning – some borrowers got away with paying nothing at all in fees, once again showing the value of learning about mortgages before taking the leap into homeownership.
Freelance writer Mark Fogarty contributed reporting. By Lew Sichelman | Special to Banker & Tradesman
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at firstname.lastname@example.org. Banker & Tradesman. Real Estate Transactions. The Homebuyer Scene brought to you by Scott Underwood and Reverse Mortgage Alabama.