What to know before you start

About home buyer education courses

When you apply for down payment assistance, you may be required to take a home buyer education course.

The same goes for a lot of first–time home buyer loans.

Homebuyer education classes teach the basics of homeownership – from comparing home loan interest rates to maintaining the new home.

This knowledge can save you money, and completing a home buyer education requirement can make you a homeowner sooner.

Verify your home buying eligibility. Start here (Dec 20th, 2021)

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First–time home buyer classes and their benefits

Taking a first–time home buyer class doesn’t just give you textbook knowledge. It can help you qualify for more affordable loan programs, too.

Loan programs that require home buyer education are generally geared toward first–time home buyers. These programs are designed to help first–time buyers overcome obstacles like lack of savings or lower income.

Completing a home buyer education requirement can open up the many perks, including:

• A lower down payment requirement
• A way to qualify with lower income or lower credit
• A chance to use roommate or rental income to qualify for the loan
• Closing cost or down payment assistance from your lender
• A program allowing 100% gift funds to pay closing costs

The time you spend in a first–time home buyer class can pay off and pave an easier path to homeownership.

Where can I find first–time home buyer programs?

So, how can you find one of these first–time buyer programs?

If you’re not sure where to start, ask your real estate agent or loan officer about nonprofits, housing counseling agencies, or local government programs in your area.

But chances are good a home buyer education class will find you if you apply for a mortgage loan designed for first–time home buyers.

For example, Fannie Mae and Freddie Mac, the two mortgage giants that buy loans from most mortgage companies, have built home buyer education into their loan programs for first–time buyers.

Depending on your down payment amount, you may receive home buyer education with these programs:

• Freddie Mac HomePossible loan: 3% down payment, roommate rent counts toward your income, your down payment can be 100% gift funds, can qualify without a credit score, do not have to be a first–time buyer
• Freddie Mac Home One loan: 3% down payment, at least one borrower must be a first–time buyer, can buy with co–borrower income, no income limits
• Fannie Mae HomeReady (class required for at least one borrower on the application): 3% down payment, renter or boarder income can be counted, down payment can be 100% gift funds, can qualify without a credit score

If you wish to use a loan program that requires home buyer education, you likely won’t have to go far out of your way.

The classes already mentioned, and many others, are available free and online.

Note: To take Fannie Mae’s Framework course for free, you must access it through one of the specific links on Fannie Mae’s site. Otherwise, you’ll be charged a non-refundable $75 fee. 

Check your mortgage options. Start here (Dec 20th, 2021)

Other ways to access home buyer education courses

Some home buyer education classes are taught in classrooms and charge tuition. The website eHomeAmerica lets users search for local classes.

Because of the pandemic, some in–person classes have transitioned into online courses or webinars.

Regardless of the format, taking one of these courses is likely worth your time.

“Today’s consumer wants to be informed. That’s why educational programs like these can give power to the buyer,” says David Mele, president of Homes.com.

“And research shows that those who participate in homeownership education have a greater ability to find the information they need about the process. It helps them find homes within their budget and appropriate financing options.”

Free home buyer education courses

Homebuyer education classes often charge a tuition fee of $75 to $125 that you’d need to pay out of pocket. Or, your lender may cover the cost and add it to the lending fees you pay at closing.

It is possible to find free home buyer education courses. However, different education providers have different standards. Your lender may not accept the class you took, even if you have a certificate of completion.

For best results, ask if your class follows national industry standards before enrolling.

Or check to see if the class is accepted by the U.S. Department of Housing and Urban Development (HUD). A HUD–approved class will meet most lenders’ home buyer education requirements.

Even if you have to pay $75 or $100 out of pocket, your investment can pay off exponentially when the class unlocks down payment assistance, tax credits, or a loan program that meets your specific needs.

When is a home buyer education course required?

Mortgage loans designed specifically for first–time home buyers sometimes include home buyer education as an eligibility requirement.

This is almost always the case for borrowers who need a closing cost or down payment assistance grant or loan.

Some home loan programs, such as Freddie Mac’s Home Possible, require home buyer education only if you’re a first–time home buyer; repeat buyers won’t need the class.

Lenders and loan programs require these in–person or online classes because they’ve found a connection between education and foreclosure prevention.

In short, the more home buyers know about the way mortgages work – interest rates, mortgage insurance, home equity, for example – the less likely they are to default.

The good news for borrowers is that a few hours in class can lead to more affordable housing options.

Check your mortgage options. Start here (Dec 20th, 2021)

What’s taught in a first–time home buyer class?

Let’s take a look at one example.

Freddie Mac’s online home buyer education course is called CreditSmart Homebuyer U. And it’s ideal for first–time buyers.

This online course provides 12 educational modules. Each spotlights a major concept you’ll need to understand when buying a home. These include:

• Getting a mortgage
• Credit and how it affects mortgages
• The home buying process
• Smart money management
• Making mortgage payments
• Homeownership and home equity

The modules are offered in English or Spanish. They make tough concepts easy to understand with bullets, visuals, and calculators you can experiment with. And they include key definitions and tips in user–friendly language.

Mele says he’s impressed by Freddie Mac’s CreditSmart Homebuyer U program.

“It aims to simplify the process so that buyers not only have the proper information but can also know how to apply it,” says Mele.

“Future buyers, for example, aren’t aware of how to utilize lower down payment options. And many aren’t clear on how those options can reduce the time needed to save for a down payment.

“Courses like this one, coupled with working with an agent, will help provide buyers a comprehensive framework to build on and keep the credit necessary for homeownership,” Mele continues.

>Related: Low– and no–down–payment loans options

Why home buyer education is important

Those who skip first–time home buyer education miss out on some of the unique loan types described above. They might have a harder time qualifying for a loan or coming up with the required funds – which will be higher, with non–specialized loan programs.

Plus, the experts say, your home buying journey might not be as smooth.

“It could result in a potentially stressful home buying and owning experience,” cautions Mele.

“And this could translate into mounting debt and reduced credit scores. Plus, they may have a higher likelihood of mortgage default.”

Backing that point up, a study by Freddie Mac showed that almost one in four people at prime home–buying age (24–38) felt “not at all confident” about knowing how to avoid foreclosure.

Lack of homeownership education “may also prevent you from taking the leap from renting to owning,” says Bruce Ailion, Realtor and attorney.

Buying a home isn’t as hard or expensive as a lot of people think. But to get started, you need the right information in your toolkit. A home buyer class gives you that power.

What the experts say about home buyer education

Lawrence Yun is the chief economist for the National Association of Realtors. He supports Freddie Mac’s first–time home buyer class and others like it.

“Educating the public about the benefits and, more importantly, the responsibility of homeownership is good all around. It’s good for lenders in reducing loan default rates. And it’s good for consumers so they can make sounder financial decisions,” Yun explains.

To better succeed, buyers should know what to expect. That’s what Ailion believes.

“Understanding the buying process, financing process, and responsibilities of ownership are critical,” Ailion notes.

“There are hundreds of thousands of renters who want to purchase. But they don’t understand what’s involved or how to accomplish this goal. CreditSmart offers an efficient way for consumers to begin this journey.”

Leslie Shull is an assistant professor of real estate at Sacramento City College.

“I am a fan of any educational model for borrowers or buyers that involves credit and budgeting. And the fact that the course is multilingual is huge. They’re making it accessible to a greater audience,” she says.

Home buying is easier than you think

Home buying might seem expensive and hard to understand. But if you take it step by step, it’s totally doable.

A first–time home buyer class can help a lot. It will give you the know–how you need to find the right loan for an affordable mortgage payment.

And if you take the right class, you could even see savings on your down payment and closing costs. Shop around and ask your lender about first–time home buyer options to find the best one.

Show me today’s rates (Dec 20th, 2021)