If you’re shopping for your first home, you’re probably adding a lot of new tasks to your to-do list — like getting preapproved for a mortgage and making an offer on a property. Here’s another step you’ll want to take: heading back to the classroom for homebuyer education.
Homebuyer education classes teach the information you need to navigate the homebuying process. In some cases, lenders may require completion of a homebuyer education class to qualify for a home loan.
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When You’re Required to Take a Homebuyer Education Class
Completing a homebuyer education course may be mandatory if it’s the first time you’ve bought a home. If you’re taking out a mortgage with a co-borrower and neither of you has bought a home before, one of you might have to take homebuyer education.
This requirement often applies to loan programs that allow a high loan-to-value ratio, or LTV, which is the amount of the loan divided by the home’s value. Loans with a high LTV have low down payments, and lenders want to make sure that borrowers who aren’t putting much money down have thought through all the responsibilities of homebuying.
“They want the first-time homebuyer to fully understand what they’re getting into and be responsible, so ultimately they’re not in over their heads and they can pay their mortgage,” says Andrew Taylor, senior vice president of wholesale lending at A&D Mortgage.
Community organizations and agencies that offer down payment assistance may also require homebuyer education, especially if their grants or loans result in a high LTV. Or, they may require borrowers to participate in housing counseling.
Lenders also may require homebuyer education if you or your co-borrower are applying for a mortgage with a non-traditional credit record.
The Benefits of Homebuyer Education Courses
Completing a homebuyer education class can help you qualify for a loan with a low down payment, which might allow you to buy a home sooner. It can also help you meet the eligibility criteria for a Community Seconds loan, which is a secondary loan that covers some of your down payment or closing costs, or another form of down payment assistance.
Even if you aren’t required to take a homebuyer course, it’s worth taking for the knowledge you gain. A class organizes all the key information you need to know, so you don’t have to gather the facts on your own.
“The homebuyer education course is going to explain to a client or a potential homebuyer all the details, because it can be an overwhelming process,” says Phil Crescenzo, division manager at Nation One Mortgage Corporation. “It can be stressful. A buyer can feel rushed.”
Completing a homebuyer education class can also help you avoid costly mistakes, says Crescenzo, so you don’t end up buying a home before you’re ready or get locked into a mortgage that isn’t right for you.
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What to Expect from Homebuyer Education
Homebuyer education courses are available both in person and online. You might prefer an online course if you want to work through the material at your own pace. On the other hand, a classroom setting may be more engaging.
“If it’s available in person, it’s significantly better for the interactive components — to be able to ask and (have a) dialogue and hear others sharing their thoughts and feedback,” says Crescenzo.
You can find courses in both English and Spanish. Fannie Mae and Freddie Mac offer courses for free, while other organizations sometimes charge fees of up to $125. Most courses are between three and eight hours long.
Courses generally cover the curriculum set by the National Industry Standards for Homeownership Education and Counseling. Lessons walk participants through the entire homebuying process and include topics such as:
— Your readiness to own a home.
— Budgeting and managing your credit.
— Understanding mortgages and other financing products.
— Shopping for a home, including making an offer and negotiating.
— Upkeep of your home and paying your mortgage.
After you complete all the course modules, you’ll take a test on what you learned. If you pass, you’ll earn a certificate that you can give your lender to show that you fulfilled a homebuyer education requirement.
How to Find a Class
You can find the Fannie Mae and Freddie Mac courses on their websites, or you can contact your local U.S. Department of Housing and Urban Development-affiliated housing counseling agency for information on what’s available in your community. Courses might be taught by housing finance agencies, community development financial institutions or university extension programs.
If your loan program requires you to take homebuyer education, you should check with your lender to make sure the course will be accepted before enrolling.
It’s a good idea to look for a course as early in the homebuying process as possible so that when your closing date approaches, you’re free to focus on other things — like inspections, appraisals and paperwork. “If you’re getting all that out of the way now and the rates drop and everybody’s going 100 miles an hour, that saves time,” Crescenzo says.
What If You Still Have Questions?
If you pass a homebuyer education class but want to learn more, you could meet with a HUD-approved housing counselor for personalized advice. “Housing counseling is more one-on-one assistance that might address unique financial circumstances or housing issues and maybe overcome specific obstacles,” says Taylor.
Your realtor, loan officer or mortgage broker can also offer guidance, so you should reach out to them with any questions. “That’s your next step,” Crescenzo says. “Verify the information. Find out how it applies to real life.”
More from U.S. News
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Should You Take a Homebuyer Education Class? originally appeared on usnews.com
