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Buying, Finance, First Time Home Buyer's Guide, Mortgage 101

Does Homeownership Education Make a Difference?

If you’re a first-time buyer, you may have encountered lenders who either suggest or require you to take a homeownership education course in order to be approved for a loan. Although it won’t help you find an affordable house in a tight market, it will help you understand how to keep it.

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If you’re a first-time buyer, you may have encountered lenders who either suggest or require you to take a homeownership education course in order to be approved for a loan. Homeownership, or homebuyer, education won’t help you find an affordable house in a tight market or outbid another buyer for the home of your dreams. Its goal is not so much to help you buy a house as it is to help you keep it.

Buying and selling homes are the most expensive transactions most Americans encounter in their lifetimes. Homeownership requires going into debt to the tune of hundreds of thousands of dollars― mortgages turn new homeowners into debtors for decades. One or two mistakes in the planning and process of buying a home could leave you so financially strapped that you must live “house poor” for years. One or more irresponsible lapses in money management in the years that follow, such as cashing out too much equity and leaving yourself vulnerable to the next housing downtrend, will spell trouble and could cost a family their home.

Young entrepreneur sitting at a table at home using a laptop and reading paperwork while preparing packages for delivery to customers

 

What Homeowner Education Involves

Homeownership education courses can be taken either online or in person. The average course takes about four to six hours to complete and can be completed in one Saturday afternoon.

The National Industry Standards for Homeownership Education and Counseling, which approves courses and educators, recommends a standard format, covering:

  • Assessing homeownership readiness
  • Budgeting and credit
  • Financing a home
  • Shopping for a home
  • Maintaining a home and finances

Does Homeownership Education Work?

Beginning In 2014, HUD launched a large-scale experiment to assess the impact of homebuyer education and counseling for a diverse sample of more than 5,800 low-moderate and middle-income prospective first-time homebuyers in 28 U.S. metropolitan areas.

Preliminary findings covering the first released in June 2019 found mixed evidence of the impact of homebuyer education and counseling. No impact was detectable on the study’s main gauge of “success”—the 60-day mortgage delinquency rate-bur early results did show that homebuyers were more prepared and more successful in-home search. Results included:

  1. Greater confidence in the ability to find needed information.
  2. Higher rates of home purchase by young adults. For those aged 29 or younger at the time they enrolled in the study, the treatment group had higher rates of homeownership than their control group counterparts.
  3. Greater satisfaction with the homebuying process.
  4. Greater likelihood of having their mortgage payments automatically deducted from their bank accounts.

On the other hand, the study found:

  1. No detectable impact on loan performance measures. No impact was detectable on the 30-, 60-, or 90-day delinquency rates;
  2. Higher levels of debt. The treatment group experienced higher levels of non-housing debt—primarily student loan debt—had a slightly higher monthly debt-to-income ratio than the control group (0.27 versus 0.26), although the treatment and control groups were equally likely to have debt-to-income ratios that exceeded 0.43, the upper limit specified by FHA guidelines.
  3. Greater prevalence of high monthly housing costs relative to income. Overall, treatment group members more often had housing costs that exceeded 30 percent of their household income than did the control group.
  4. Lower reported ability to cover all bills. Overall, a higher proportion of the treatment group than the control group reported occasionally not having enough money to cover bills. Treatment group members offered remote services were more likely to say they would contact their lender if in financial distress.
  5. Treatment group members offered remote services reported higher student loan balance and several other outcomes, particularly on those in the domains of preparedness and search and financial capabilities.

When the final report is available in 2021, it is expected to have long term data, especially results on the impact homeownership education has on 30 to 90-day delinquency and default. At least until then, homeownership education and counseling will play a vital role in preparing new buyers for the financial costs of homeownership.

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Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.

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