What is homeownership education and counseling?

In recent years, the home-buying process has grown more and more complicated. In addition to the standard fixed-price mortgage, prospective home buyers are now offered a wide array of different mortgage products. Some mortgages may offer low starting rates to first-time homeowners that increase to the point where families can no longer afford their homeownership costs. Other products may charge very high fees to existing homeowners seeking to refinance. The increased complexity of the mortgage market reinforces the need for pre-purchase homeownership education and counseling to help prospective homeowners assess their options and understand their responsibilities -- as well as for post-purchase homeownership education and counseling to help existing homeowners become savvy about their refinance options. Post-purchase classes can also help homeowners understand their home's maintenance requirements, learn how to weatherize their home, and address other common concerns.

A third type of homeownership counseling -- foreclosure prevention (or default loan) counseling -- can be distinguished from other forms of post-purchase counseling in that it represents a response to problems rather than an attempt to pre-empt them. For more on this third type of homeownership counseling, see the Foreclosure Prevention summary.

Homeownership education and counseling programs, particularly pre-purchase counseling programs, are common in most communities, but many need more resources to expand their reach.


How is homeownership education and counseling a tool for affordability?

Through pre-purchase education and counseling, families can make an informed decision about whether and when they are ready to purchase a home and learn how to budget for repairs and other periodic homeownership expenses. For this reason, pre-purchase homeownership education and counseling is often required of families seeking to participate in affordable mortgage programs. Families who attend pre-purchase education and counseling can also understand how to spot and avoid predatory lending practices and learn how to improve their credit scores so they can qualify for more attractively priced private-market mortgage products. A recent Center for Housing Policy study, Impacts of Homeownership Education and Counseling on Homebuyer Purchasing Power, found some evidence that families who attend homeownership education and counseling can significantly increase their credit scores and therefore their purchasing power. Families' total increase in purchasing power was much greater than the cost of counseling. By helping families qualify for safer, lower-priced mortgage products, a small investment in homeownership education and counseling can yield a large return in increased borrowing power. Pre-purchase education may also help to reduce defaults and foreclosure. A study by Freddie Mac found that certain types of pre-purchase homeownership education and counseling -- specifically, classroom education and individual counseling, but not telephone education -- significantly reduced mortgage default rates. [1]

Solutions in Action

Photo credit: Milwaukee Housing Authority Since 1999, the Colorado Housing and Finance Authority (CHFA) has required all participants in its homeownership programs to complete a homeownership education course. The course is offered free of charge and is open to all Colorado residents. Learn more about Colorado's homeownership education programs.

Continued homeownership education following the home purchase -- often called post-purchase education -- can also be helpful by preparing homeowners to better meet their ongoing home maintenance needs, reduce utility bills through weatherization and increased energy efficiency, budget for repairs, and avoid predatory refinancing schemes -- reducing the risks of default and foreclosure.


Where are these policies most applicable?

Homeownership education and counseling is needed by families nationwide, but is especially critical in communities with a high share of subprime mortgages or experiencing increases in mortgage defaults and foreclosures.

Many non-profit homeownership education and counseling organizations lack sufficient resources to respond to all of the individuals seeking assistance. Some states and localities use locally-controlled resources to augment these organizations' capacity to serve more families. Others provide technical assistance to improve the consistency and quality of homeownership education and encourage coordination among providers to minimize duplication and facilitate access by interested individuals.

Many communities make homeownership education and counseling a prerequisite for obtaining down payment assistance.

Learn more about expanding homeownership education and counseling. Go back to learn about other policies that help residents succeed.

[1] A Little Knowledge is a Good Thing: Empirical Evidence of the Effectiveness of Pre-Purchase Homeownership Counseling. [PDF] 2001. By Abdighani Hirad and Peter M. Zorn. Prepared for a Joint Center on Housing Studies' Symposium on Low-Income Homeownership as an Asset-Building Strategy at Harvard University.