For some borrowers, homebuyer education can mean the difference between getting a mortgage or a rejection letter. Just as importantly, it can help inform borrowers how to manage a loan over time while affording maintenance, repairs and the myriad other costs that come with homeownership.

Homebuyer education today comes in the form of easy-to-use online courses or workshops delivered by housing counseling agencies that focus on financial preparedness and building credit. They also shed light on the decision-making of lenders, the significance of how a loan is structured, including the role of down payments, and budgeting to maintain a home after purchasing it.

While many aspiring buyers take these types of courses as a lender requirement for a low down payment loan or assistance, the knowledge they gain may help them save hundreds or maybe thousands of dollars over the life of a mortgage. These courses are also an efficient way for lenders to enable their clients to make smart choices.

Understanding fully the mortgage process when buying a home can have a lasting, positive impact for borrowers and their families. Three Freddie Mac employees, who recently completed the CreditSmart® Homebuyer U program, talk about the edge it gave them on their path to becoming new homeowners.

Tidying up Credit, Deciding on a Down Payment and Budgeting for Homeowner Expenses

Nancy Butzen wanted space for her grandchildren when they visited, and for a dog, but it wasn’t something she could manage while renting the lower level of a townhome in Falls Church, Virginia.

As an underwriter, Butzen knows the mortgage business but said navigating the process as a consumer is a different matter. It suddenly became more personal.

“I had an informational advantage because of my work,” Butzen said. “And I’d owned a home much earlier in life, but that was a long time ago, and the process is very different today than it was back then.”

What she needed was a decision-making framework to take the smartest financial approach after realizing that, for her situation, purchasing a home could simultaneously double her living space and monthly housing expense.

“The course really lays out all the issues and advantages tied to homeownership,” she said. “It gives you a way to look at the decision. And for me, it was a big one given how much more I’d be paying over renting.”

The module on credit scores, Butzen said, gave her the most tangible return on taking the course. It motivated her to take the time to settle some minor, outstanding medical bills that were lowering her score.

An unexpected benefit of the course is that it helped Butzen decide to put down only 3% on a home, even though she would have to pay mortgage insurance. It was more important, she explained, to have enough savings left over to maintain a home and manage unexpected expenses.

“Since I was buying alone, the section on budgeting for expenses was really enlightening,” she said. “Like setting up autopay to cover your mortgage payments and opting to pay the same amount over 12 months for gas and electric to budget for future costs.“

With a better understanding of her finances, Butzen felt freer to consider the personal preferences she wanted in a home and consequently chose a two-bedroom condo in Ashburn, Virginia.  

“The first thing I did after I closed was to get Tosca, a 12-week-old French bulldog,” she said. “That’s something I couldn’t do in my former living arrangement.”

 

Leveraging Improved Credit and Saving from the Outset and Over Time with A Lower Rate

For his home, Chiragkumar “Chirag” Patel, a developer who works in technology, wanted to choose the lot and model of house he wanted to buy. But first, he needed a roadmap to walk him through the homebuying process step by step. In January 2020, he and his wife selected a lot in a subdivision in Chantilly, Virginia, and the two-story, four-bedroom house they wanted built on it.  

Patel, who, completed the Homebuyer U course over the span of two weeks said the, “highest-value advice” was learning how much he could bump up his credit score to get a better rate on a loan. This struck him because before taking the course, he had been required to apply for a mortgage with the builder’s lender in order to secure his selected lot.

“When I signed the contract to build out the construction and got that loan offer, I could see how clear the connection was between the rate and my credit score,” said Patel, who eventually realized the degree to which a higher score would increase his chances of securing a lower rate.

The first thing he did was pay off his auto loan, which really improved his score, and then paid off the balance on his credit cards. He also kept credit card charges to a minimum when he began shopping around for other loan offers.

“It’s the main thing you can do to line up the best loan possible, because you’re competing with so many other buyers in today’s market,” he said. “For that reason alone, I’d take the course again.”

Working off the offer from the builder’s lender, Patel got several more quotes with better rates, locking a fixed-rate loan for less than 3%.

The course, which he said was essentially a primer on housing finance, helped him decide to put down 20% on a home instead of his original plan of just 10%. Because he was able to afford this, it made sense in his situation because he’d pay that much less interest over time and avoid mortgage insurance.

Patel and his wife, who are expecting their first child later this year, recently closed on the home and moved in along with his parents, leaving the basement apartment they’d shared for four years in Ashburn.

 

“Thinking Like a Lender” to Finance a Multi-Generational Home

Nisarg Patel decided in late 2019 that he was ready to buy a home now that he was married and would turn 35 this year. Like Chirag Patel (no relation), he and his wife wanted a house with enough space to accommodate a multi-generational household, which included his parents.

A data messaging developer, Nisarg Patel wanted to know what mattered most to lenders in deciding the mortgage rate they’d offer him.  With interest rates at such low levels, he and his wife were able to consider several locations, deciding on a lot in Manassas, Virginia, where they could have a six-bedroom house built.

The builder’s lender preapproved him, offering $10,000 toward the purchase price but at a rate above 3%. Having taken the homebuyer education course, Nisarg Patel realized that with the rate offered on the loan, the $10,000 incentive wasn’t worth it.

“I would have blindly gone ahead with the builder’s lender because of that $10,000,” he said. “But the course tells you to ‘think like a lender,’ and I began doing that. It was like getting the inside story on this business.”

A credit check tied to the loan had revealed blemishes on Nisarg Patel’s record, including a cell phone purchase made in his name but never paid for. He held out on authorizing a credit check with a second lender while working to have the charge, which appeared as a delinquency, removed from his report. It took him several phone calls and a couple of weeks.

 “I told them [the lenders] not yet,” he said. “When they kept pushing me to agree to let them run my report, I knew a higher score would get me better terms and lower closing costs.”

Finally, he had found a 3% rate with a major regional bank, less fees and a paydown option, which will reduce the interest charged on his loan if rates fall to 2.75%. He also decided to put more than 20% down for a loan with a term of less than 30 years.

“I found I could comparison shop for mortgages to get the best possible rates and terms,” he said, “and that I had a granular level of detail to edge out a better deal than I’d imagined getting.” 

The risks of skipping this homebuyer education program is missing out on knowing what you should put down, and what advantages you gain from putting down even more to qualify for a conventional mortgage. And like Butzen, Nisarg Patel said he still thinks about the advice in the last section of the course—about budgeting for the expenses tied to homeownership—and doubts he’ll forget it.

 

Financial Education as the Grounding for Homeownership

Homebuyer education can empower consumers, whether it’s a first-time purchase or phase in the homeownership journey. The curriculum, delivered in short, interactive modules, takes two to three hours on average to complete. They are well-tailored, on-demand virtual learning that meet fast-changing consumer expectations, especially under current circumstances where face-to-face contact is so limited.

As COVID-19 has moved even more of the homebuying process online, consumers expect to do more digitally, including researching or getting answers about the mortgage process. In lieu of face-to-face interaction, lenders can establish a connection with potential borrowers through homebuyer education and bring them further along in the process with less phone calls and emails about the mechanics of the process. In short, the pandemic presents them with a window of opportunity to leverage an important tool.