Prepurchase classes highlight need for homebuyer literacy
By: Mary Ellen Podmolik
November 11, 2012
Rents are up. Home price declines are shrinking. Mortgage rates are so low they're hard to believe.
The situation is prompting would-be homeowners to ask themselves whether this is the time to buy. But they're also asking themselves whether they're truly ready to buy.
In classrooms, public meeting spaces and even online, homebuyer literacy is growing in popularity as the housing industry and consumers seek to avoid a repeat of the industry's meltdown.
Eight hours of prepurchase education approved by the Department of Housing and Urban Development are required for first-time homebuyers seeking to participate in special financing programs.
But the classes offered by nonprofit agencies are open to anyone, and many of them are free or available for a nominal charge that covers expenses. Groups that offer the classes are seeing an uptick in enrollment, with every seat filled.
"I've been surprised by the amount of young, white, upper-income individuals taking the class," said James Rudyk, executive director of the Northwest Side Housing Center. "I think people are scared. They're skeptical of everything that's happened. They want to make an informed decision."
The earlier prospective buyers receive the counseling, the better the outcome because consumers are able to decide if homeownership is the right move for them. Topics typically covered in classes include the pros and cons of homeownership, financial issues such as developing a budget, understanding credit scores, applying for a mortgage loan and picking the right home and neighborhood. Many of the groups that offer the classes follow up with one-on-one counseling.
To serve homeowners, especially those who have difficulty making time for in-person classes, housing counseling agencies in 48 states and two U.S. territories have partnered with eHome America to offer eight hours of prepurchase education online. In the Chicago area, the course is available through the nonprofit Neighborhood Housing Services of Chicago Inc. for $50, but consumers also can take it through eHome America.
Online doesn't mean easy, however, for this HUD-approved course. It includes a pretest to gauge a person's knowledge, and 47 quizzes and eight tests that must be passed to earn the course certificate necessary to participate in some housing program. On average, 1,400 consumers are completing the online course in English or Spanish each month.
"It's intended to challenge people," said Garry Throckmorton, eHomeAmerica's national administrator. "It's intended to be focused education to help people become more successful homeowners."
"We believe a new housing crisis can be averted with a better informed, educated homeowner," he added. "We want to make this a more mainstream step in the homebuyer process."
Prepurchase counseling works, according to a study released by HUD last spring. Researchers found that of 579 consumers who received home purchase counseling in 2009, only 35 percent moved forward and bought a home within 18 months of receiving the counseling. Of that group, only one consumer had fallen behind on payments 12 months after the purchase.
The study also found that the median FICO score of participants when they enrolled in counseling was 610, and 38 percent of the group improved their FICO scores by at least 20 points.
Learning to understand personal credit histories and making improvements necessary has taken on greater significance in the current housing market.
In September, the average FICO score of all first mortgages that closed was 750, while the average score of denied applications was 704, according to Ellie Mae, a provider of mortgage origination software.
"We do find people that decide it's not the right time. Maybe it's the credit score, maybe they want more savings, a cushion post-purchase," said Karen Woods, director of homeownership services for Neighborhood Housing Services. "It benefits all of us to have well-informed borrowers."
Consumers should keep an eye out for additional classes. Various counseling groups are looking to expand their programs to include post-purchase classes on topics like home maintenance, schools and becoming a member of the community.
Listed below are links to blogs that reference this entry: Prepurchase classes highlight need for homebuyer literacy.
TrackBack URL for this entry: