homeownership counseling: overview

What is homeownership education and counseling?

Homeownership education and counseling consist of group classes and one-on-one sessions that help prepare individuals to either purchase a home or make effective decisions about homeownership issues, such as refinancing, reverse mortgages, repairs and maintenance, and foreclosure prevention. Education typically refers to group classes, while counseling refers to one-on-one assistance. Homeownership education and counseling can be broadly divided into four main categories: pre-purchase, post-purchase, reverse mortgage, and foreclosure prevention (or default loan). This section of HousingPolicy.org will focus primarily on pre-purchase, post-purchase, and reverse mortgage education and counseling. For a detailed look at foreclosure prevention counseling, go to the Information and Counseling section of our companion site, Foreclosure-Response.org.

Why is homeownership education and counseling important?

The home-buying process is more complicated than simply seeing if a prospective home buyer has the savings and income to support a conventional mortgage. In addition to the standard 30-year fixed-rate mortgage, prospective home buyers may be offered a wide array of different mortgage products -- although perhaps fewer than had been available prior to the foreclosure and credit crisis. For example, some mortgages have low introductory rates that increase to the point where families can no longer afford to make their mortgage payment along with the rest of their household bills. Other products charge high fees to existing homeowners seeking to refinance.

The 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.

For first-time homebuyers, the variety of mortgage products may be difficult to understand. The 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, post-purchase homeownership education and counseling to help existing homeowners become savvy about their refinance options, and reverse mortgage counseling to help homeowners understand these complex loan products. Post-purchase classes can also help homeowners safeguard their investment and their home's affordability by understanding their home's maintenance requirements, learning how to weatherize their home, and budgeting effectively for home repairs.

Homeownership education and counseling programs, particularly pre-purchase counseling programs, are common in most communities, but rising mortgage defaults have shifted many housing counselors from pre-purchase to foreclosure counseling -- leaving prospective homebuyers with fewer places to turn for reliable information. Although the National Foreclosure Mitigation Counseling Program provides dedicated federal funding for foreclosure prevention counseling, many homeownership education and counseling programs need more resources to expand their reach and train counselors to handle both pre-purchase and post-purchase needs.

How does homeownership education and counseling help individuals and communities?

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 2007 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. Tighter access to credit in recent years may mean that families need more credit counseling before being able to qualify for an attractively-priced mortgage product.

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
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Milwaukee Homeowners
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.
counseling, but not telephone education -- significantly reduced mortgage default rates. [1] As documented on Foreclosure-Response.org, reducing mortgage defaults yields benefits both for borrowers and for the neighborhoods where they live. To help prepare families for homeownership, many communities make homeownership education and counseling a prerequisite for obtaining downpayment assistance.
Continued homeownership education after a home purchase -- often called post-purchase education -- can prepare 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 that can put continued homeownership in jeopardy.

For older adults, reverse mortgage counseling provides information they can use in deciding whether and how to access their home equity. Counseling for homeowners considering a reverse mortgage is required by certain reverse mortgage programs, such as the FHA-insured Home Equity Conversion Mortgages (HECMs) and Fannie Mae's Home Keeper Mortgage. Reverse mortgages draw down home equity without requiring monthly payments on a home equity loan or line of credit, but the mortgages can be costly and complicated for homeowners to fully understand. Clear and thorough counseling is essential to ensure that older homeowners are well informed about these products and their other options for meeting or reducing their expenses.

Where are these policies most applicable?

Homeownership education and counseling is needed by families nationwide, and expanding its availability is especially critical in communities that are experiencing large numbers of mortgage defaults and foreclosures since housing counselors in these areas are apt to have been diverted to focus on foreclosure prevention. Communities with more stable housing markets may also benefit from expanding homeownership education and counseling to prepare prospective and existing homeowners for success.

In many communities, 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.

Chicago NHSLearn more about expanding homeownership education and counseling.

High PointGo 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.