Inside the lessons of homeownership counseling

by Broderick Perkins

(3/27/2013) Homeownership counseling has a proven track record of saving homes from foreclosure and otherwise helping homeowners remain so - long term.

The type of counseling varies depending upon the need.

There's counseling for distressed homeowners facing foreclosure, counseling for those applying for special mortgages, and counseling for those considering and entering bankruptcy, among other types.

Some counseling is mandated for certain mortgage programs and mortgage relief programs, but anyone considering buying a home can and should get, well, home schooled.

Perhaps the most useful counseling is before-the-fact, pre-homeownership counseling.

The sort of crash course in homeownership can go a long way toward not needing some of the mandated counseling the comes with new mortgage regulations.

Pre-homeownership counseling removes some of the ignorance that gets homeowners in trouble when they hit hard times.

Homeownership counseling standards

The U.S. Department of Housing and Urban Development's (HUD) certified counseling is available for most government programs and similar standards are set by the National Industry Standards for Homeownership Education and Counseling (NISHEC), by the National Advisory Council, in conjunction with HUD, major banks, real estate associations, and community groups, small and large, like NeighborWorks.

Douglas Robinson, a spokesman for 35-year-old NeighborWorks, a Washington, D.C.-based consortium of community-based non-profits focused on affordable housing and community development, says "It's at least 8 hours, some of which can be taken on-line, depending on the organization. Some consumers who have more difficult financial situations are then provided one-on-one financial coaching."

Homeownership counseling curriculum

In it's purest form, based on NISHEC standards, pre-purchase counseling includes five basic topics: assessing readiness to buy a home; budgeting and credit; financing a home; selecting a home and maintaining a home and finances.

Each topic is designed to give the potential homebuyer insight on a facet of homeownership.

Assessing Readiness To Buy

First, you'll learn the pros and cons of homeownership, get an overview of the home purchase process, learn about housing affordability and delve into the world of credit.

You should come away from this section with an understanding of the benefits and responsibilities of homeownership and have the ability to self-assess your readiness to buy.

You'll also be equipped to calculate your level of housing affordability and be able to see the mortgage transaction from the lender's point a view.

Budgeting and Credit

The previous session gave you an appetizer for the credit and budgeting education that follows in this session.

Here, you'll learn how to set up a budget, track expenses, set up a spending plan, manage debit and you'll learn the related importance of goal setting.

Credit lessons will include the importance of good credit and credit ratings, credit bureaus, credit reports and credit scores, as well as how to fix credit problems.

In the process, you'll actually set financial goals, develop a system to track expenses, create a spending plan, and determine ways to reduce expenses and increase savings.

You'll also learn to order your credit reports and credit scores, how to improve your credit rating and how to reduce your debt.

At this point, you aren't even half way through your counseling.

How many homeowners do you know who can truly say they accomplished even this much before buying a home?

Financing a Home

Once you've determined your readiness to buy and learn how to get your financial house in order, you'll learn the ins and outs of what it takes to land a mortgage.

This segment will teach you the various sources for home loans and the types of mortgages available, including predatory and toxic loans to avoid.

You'll go through the mortgage application process, learn what documents the lender will expect you to provide and you'll learn what documents and disclosures the lender will present to you during the mortgage application and approval (or rejection) process.

The take home will be an understanding of how lenders make decisions, information on how you can determine what's affordable for you and insight to help you choose an appropriate home loan from a good source.

You'll also learn what resources are available to help you through the mortgage and home purchase process, what to do if your loan application is rejected and you'll understand the loan closing process that ensues after you are approved.

Shoppping For a Home

Shopping for a home can be just as daunting as shopping for a mortgage, which is why you likely won't go it alone.

Home shopping topics introduce your home buying team, the different types of homes and ownership, the home and neighborhood selection, making an offer on a home, inspections, negotiating, the purchase contract and more on escrow and the learning process.

You'll come away with an understanding of both the professionals involved in the home buying process and the different type of real estate professions.

You should also be able to determine the difference between your wants and needs in the home selection process. You should understand the home purchase process and the importance of home inspections.

You'll also have a better working knowledge of the title, escrow and closing process.

Maintaining a Home and Finances

What you need to know about homeownership doesn't end when you sign on the dotted lines of a ream of documents. To keep your home and finances in working order, you'll need to know how to maintain your home and the costs associated with ownership.

Lessons in this section include information about home safety and security, energy efficiency, preventative maintenance, repairs and working with a contractor.

And, you won't live on an island, so you'll also learn the need for and the value of community involvement.

You'll also get some continuing education on your finances including record keeping, taxes, insurance, what to do if you get in financial trouble and can't make a payment.

As part of your schoolwork, you'll create an emergency plan, learn how to reduce energy use, create a plan for routine maintenance, and come to understand the difference between repairs and improvements.

Final words

Remember, this is just an outline of a basic counseling session for first-time homebuyers. Lessons can vary if you are taking out a reverse mortgage, face foreclosure, are considering bankruptcy or need counseling for other reasons.

The key is to get help as soon as you know you might need it, not after you've spent months with your head in the baseboards.

Before you miss a payment, before you go looking for that first home, before you consider bankruptcy and before notice of a sheriff's sale of your home shows up in your mailbox is when you should seek out counseling or other assistance that can make you a smarter homeowner longer.

Just remember to seek HUD-certified counselors, counselors trained under the NISHEC systems and counseling help offered by agencies affiliated with groups like NeighborWorks America and you'll be home free.

Also see:

• "Mortgage reform regulations, mortgage relief programs, special mortgages mandate homeownership counseling - for good reason"

• "What's to learn from homeownership counseling?"