Expand 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. With the onset of foreclosure recovery efforts, numerous downpayment and closing cost assistance programs are also available. The increased complexity of the mortgage market reinforces the need for pre-purchase homeownership education and counseling. This will help prospective homeowners assess their options and understand their responsibilities. There is also a need for post-purchase homeownership education and counseling to help existing homeowners become more aware of their refinancing 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 counseling — can be distinguished from other forms of post-purchase counseling in that it is responsive instead of proactive. It does not enter into action until a problem has or is about to develop.

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

How is homeownership education and counseling a tool for supporting housing choices?

Through pre-purchase education and counseling, families can make an informed decision about whether they are ready to purchase a home, determine what home price they can afford, and understand the income needed to pay for mortgage, taxes, insurance, utilities and maintenance. They can also 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 that target lower incomes.

People who attend pre-purchase education and counseling can also understand how to spot and avoid predatory lending practices. They can also learn how to improve their credit scores so they can qualify for more attractively priced mortgage products. A recent Center for Housing Policy study, Impacts of Homeownership Education and Counseling on Homebuyer Purchasing Power, found evidence that families who attend homeownership education and counseling can significantly increase their credit. By helping families qualify for safer, lower-priced mortgage products and entry cost assistance programs, 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 significantly reduced mortgage default rates. The programs that worked best were classroom education and individual counseling, but not telephone education.

Many of the classes are offered in multiple languages to accommodate people whose native language might not be English.

Continued homeownership education following the home purchase can also be helpful by preparing homeowners to better meet their ongoing home maintenance needs by budgeting for repairs. It can also reduce utility bills through weatherization and increased energy efficiency.

Consider the cost of transportation in home purchase decisions.

When looking for a place to live, the monthly rent or mortgage payment is typically of paramount concern; however, the cost to travel to work from home is often understated or not even considered. The linkage between transportation and housing go well beyond mobility. Evaluating transportation options is important related to overall housing affordability.

The Brookings Institution analyzed household costs and created an Affordability Index that used the Twin Cities as the model. In this report, transportation is shown to be the second largest household cost. Nationally they found that transportation expenditures as a percentage of household costs range from less than 10 percent in transit-rich areas to nearly 25 percent in other areas.

A Transit for Livable Communities report states the average Twin Cities household spent 17 percent of its income on transportation. This is worrying enough but the report also showed that low income households spent substantially more. Households in major areas that have more extensive transit systems spent significantly less than the average. This is a lesson that should not be lost on policy makers and should be considered when making a housing purchase choice.

Transportation Cost Calculator

My Transportation Cost Calculator allows you to customize data specific to individual location and housing decisions by entering basic information about your household’s income, housing, cars, and travel patterns. The customized estimates can give you a better understanding of your own transportation costs, how much they would differ in other locations, and how much they are impacted by individual choices, allowing you to make more informed decisions about where to live and work.

This calculator is an important part of homeowner education and will allow users to:

• Calculate the combined housing and transportation costs using household characteristics and location.
• Evaluate the factors that determine housing and transportation costs, and how changes impact expenses.
• Assess the true proportion of income being spent on housing and transportation.
• Compare actual household costs with neighborhood and regional averages.
• Evaluate the full costs of a new location before moving.

Where are these policies most applicable?

Homeownership education and counseling is needed by families nationwide. In Minnesota, this can even include those buyers with knowledge of the home buying process and those already working with a lender or realtor. Such persons indicate a high rate of satisfaction and knowledge gained when participating in the Minnesota Home Ownership Center‘s Home Stretch pre-purchase classes.

In Minnesota, many pre-purchase education and counseling programs are funded through the Home Ownership Education Counseling and Training fund (HECAT). HECAT is a competitive funding pool sponsored by Minnesota Housing, the Home Ownership Center, the Family Housing Fund, and the Greater Minnesota Housing Fund. The Home Ownership Center provides technical assistance, capacity building, and program oversight to ensure consistency and quality of homeownership education and encourage coordination and sharing of best practices among providers. The Center refers home buyers to programs based on geographic proximity and individual homeowner needs.

Many Minnesota communities and financial institutions require Home Stretch in order to obtain downpayment assistance and first time homebuyer mortgage products.