The Housing Scene by Lew Sichelman

Pre-purchase Counseling Proving Helpful

As part of National Homeownership Month, Shaun and Nicole Avery journeyed from rural Maine to the White House in late June to tell their story about how homeownership education classes helped pave the way to their first home.

Nicole and Shaun -- an active member of the Coast Guard -- participated in homebuyer education and pre-purchase courses offered by Coastal Enterprises Inc., a counseling agency approved by the Department of Housing and Urban Development (HUD). The Averys went through a 10-hour, web-based curriculum that allowed them to proceed at their own pace, followed by several in-person consultations with a counselor. As a result, they were able to pair a state-sponsored down payment assistance program with a VA loan.

And now they are no longer renters; they own the roof over their heads.

Stories like this are playing out across the land as more and more potential first-time buyers are learning just what it takes to be owners. They find out how mortgages work, how to make and live within a budget, how to maintain a house, the necessity of building up savings for major repairs, and what to do if they are hit with a layoff or major illness and can't make their payments.

Not everyone sees the value of such education. Some lenders view counseling as a speed bump that prevents them from closing loans quickly. And a study by Fannie Mae found that counseling programs may be a waste of time for consumers. The giant mortgage investor said its research shows that 36 percent of lenders believe that such programs have no value, compared to 33 percent who believe they do.

But the preponderance of research suggests otherwise. For example, early results from a rigorous HUD study of the benefits of housing education and counseling are "encouraging," the agency reported last month.

Over the next four years, HUD hopes to provide definitive, long-sought answers about the impact of homebuyer education and counseling on mortgage literacy and preparedness, the success rate of buyers being able to keep their homes, and how well they perform with their mortgages.

So far, the agency says participants show a better understanding of their loans and the mortgage process than a control group that didn't go through counseling. Participants are also more likely to have higher credit scores, and showed a greater appreciation for communicating with lenders.

Other studies have already validated the impact of pre-purchase education. An analysis of 75,000 loans originated between 2007 and 2009, for example, showed that borrowers who took classes offered by NeighborWorks America's nationwide network of affiliates were one-third less likely to become 90-plus days delinquent during the two years after they received their loans.

More broadly, a study by researchers at The Ohio State University found people who took financial counseling courses perform better on a variety of credit outcomes, including revolving debt, better money-management skills and improved financial confidence.

Even a later survey by Fannie Mae, which found "major shortcomings in consumer knowledge," suggested that borrower education is worthwhile. "Advancing from aspiration to sustainable homeownership is more likely to occur if consumers have an accurate understanding of the requirements to qualify for a mortgage," Fannie's researchers said.

Fortunately, it isn't difficult to find decent counseling services. Simply go to and search out HUD-approved agencies in your area. The services are often free, but may cost a few hundred dollars.

Here are the types of classes you'll find:

-- Pre-purchase. This will help you learn the habits of good credit, prepare you for all that is involved in owning a home, teach you about mortgages and how to make sure you are creditworthy. While pre-purchase counseling is primarily aimed at rookies, and may be required by some lenders, repeat buyers may also be required to attend classes if they have gone through a foreclosure.

-- Post-purchase. Learn how to navigate the unchartered ownership seas that lie ahead once you move into the house. Learn how to manage your loan if you think you might miss a payment as a result of a layoff or medical emergency, or if you are just short on cash. Learn how to manage your budget and how to pay for major repairs such as a leaky roof or malfunctioning air conditioner.

-- Foreclosure prevention. If you fall behind on your payments, this class can help you work with your lender and get back on track.

-- Rental assistance. Similarly, counseling agencies can help renters who are experiencing problems making their rents or finding affordable housing.