Housing and Credit Counseling

    Image of books stacked in shape of houseTalking to a credit counselor is probably the last thing on your mind when you’re shopping for a home.

    The list of people you already have to speak to — loan officers, real estate agents, home inspectors, title company officials, and contractors – is long enough to make some people consider giving up on the idea, especially if they have to add credit counseling to the list.

    However, good credit counselors can be a great addition to a home shopping team. Nonprofit credit counseling helps people get their finances in order before they buy a home. It can also help renters or people who already own a home and are considering a reverse mortgage.

    Credit counseling will help you understand why your credit score is an important factor in housing, whether you buy or rent. It will show you on how to improve your score so an affordable interest rate on a home loan or favorable response from a landlord is within your reach.

    Types of Homeowner and Mortgage Counseling Services

    Nonprofit credit counseling agencies offer a variety of services that can increase the chances you’ll have a successful home-buying experience.

    First-time homebuyers, for example, may be required by lenders to get some type of mortgage counseling services such as pre-purchase counseling before they buy a home.

    People who have had a foreclosure or other type of financial risk such as falling behind on mortgage payments, may need delinquent mortgage counseling. A homebuyer education course may also be required.

    Homeowners seeking a reverse mortgage must undergo reverse-mortgage counseling about how the program works and if their finances make them suitable for a reverse mortgage.

    If you’re having a hard time finding a place to rent because past financial mistakes have stained your credit score, a rental assistance counselor can help you get your finances in order.

    For help finding a free, nonprofit mortgage counselor, a good place to start is seeking credit counselors approved by the U.S. Department of Housing and Urban Development (HUD) by using the HUD database. Another option is to find credit counseling agencies certified by the National Foundation for Credit Counseling (NFCC), and the Financial Counseling Association of America (FCAA).

    Here are more details about the types of homeowner and mortgage counseling services that can help you if you’re looking to buy a home, already have one, or have difficulty renting:

    Pre-Purchase Credit Counseling

    One of the first questions you should answer before shopping for a home is: How much house can I afford?

    A mortgage lender isn’t in the business of telling you how to run your family’s budget. They will look at what percentage of your income is going toward housing, but otherwise won’t get involved in whether you’re buying a more expensive home than you should.

    Pre-purchase counseling helps potential home buyers evaluate their finances and create a budget. It helps calculate an affordable monthly mortgage payment that’s sustainable over time. If you haven’t already done these things on your own, then this assistance comes at a key time and can help you figure out how to afford the biggest purchase of your life.

    Some lenders may require pre-purchase counseling for first-time homebuyers, people who have previously foreclosed on a home, or those deemed a financial risk. Going through the counseling may help borrowers qualify for homeowner assistance programs.

    The counseling can also help you save a lot of money. Counselors will teach you how to build your credit, and with a higher credit score you can qualify for better mortgage rates and pay less interest on your home.

    Along with educating you on how much home you can afford, a HUD-certified housing counselor will tell first-time home buyers the full costs of homeownership.

    Housing expenses include property taxes, insurance and upkeep. Not paying the mortgage bill on time each month or not paying property taxes can lead to foreclosure.

    You’ll also be taught about the people involved in the home-buying process: real estate agents, settlement attorneys, inspectors, appraisers, underwriters, loan processors, and brokers.

    Here are some other topics that should be covered:
    • Types of home loans and how they work
    • How to choose an affordable mortgage
    • How to meet loan requirements
    • Avoiding past financial problems
    • Resources to help meet your financial needs

    When the program is completed, you’ll get a certificate showing that you’ve finished it. You’ll also get an action plan and a packet with everything you’ve discussed.

    Pre-purchase counseling generally costs $50 to $130.

    Additional Homebuyer Education

    Sometimes a little more education is required by lenders after pre-purchase counseling has been completed. Don’t let this scare you. This is a good thing. It’s a way to help you buy a home and figure out how to balance your finances after the purchase.

    This additional homebuyer education can help you learn how to:
    • Choose a real estate agent
    • Prepare for closing costs
    • Understand Homeowner Association fees
    • Manage a loan
    • Bounce back after missing a payment

    Post-purchase counseling is generally free, but some of these programs can cost $25 to $75.

    Reverse Mortgage Counseling

    If you own your home and have little or no outstanding mortgage debt, are 62 or older, and need money, then a reverse mortgage is one way to pull money out of your home.

    A reverse mortgage allows seniors to borrow against their home’s equity for retirement, medical expenses or to make home improvements. No payments are required as long as they live in the home.

    The Federal Housing Administration, which is the primary provider of reverse mortgage loans, requires applicants to receive reverse mortgage counseling. The counseling is meant to help seniors understand how the loan works and if it’s suitable for their needs.

    A financial assessment of their income, assets and debts is also done to ensure borrowers can pay for property taxes, homeowner’s insurance, basic home maintenance, and HOA fees if there are any.

    A home equity conversion mortgage (HECM) is one of the several types of reverse mortgages.  It’s insured by the Federal Housing Administration (FHA), which is the only place that offers HECMs.

    Fewer HECM loans have been made in the last few years, reaching a two-year low in fiscal year 2019 with 31,260 HECM loans endorsed by the FHA, according to HUD. Single women are a growing share of such borrowers, accounting for 38% in 2019.

    Reverse mortgage counseling can be done in person or over the phone. It costs around $175, though the fee can be waived or reduced under certain eligibility requirements. A certificate of completion is given at the end of the counseling, which can be given to the lender within six months.

    Reverse mortgage counseling isn’t done with a lender, but with an expert who has no financial interest in the reverse mortgage.

    The counselor will go over how a reverse mortgage works, along with other things such as:
    • Financial and tax implications of a reverse mortgage
    • Fees
    • Other options such as housing, social services, health and other financial alternatives
    • Terminology
    • How long the loan lasts
    • The option of selling your home

    Mortgage Delinquency Counseling

    The biggest worry home lenders have is that borrowers will have problems paying their mortgage and become delinquent on their loan. That’s why they check credit scores and look out for past foreclosures. Missing mortgage payments is more common among first-time homeowners than for repeat buyers.

    Having too many types of debts — such as student loans and high credit card balances — and then adding a mortgage can lead to missed mortgage payments. Nearly 1% of mortgage loan originations in the first quarter of 2019 were delinquent six months after origination. That is a 60% increase from the past two years and the highest since 2010, according to a Black Knight report.

    Not paying your mortgage can lead to late fees, poor credit and foreclosure. Losing your home is the worst consequence, and if you’ve missed payments in the past then a lender may ask you to undergo mortgage delinquency counseling — which is also called by the more ominous name of foreclosure prevention counseling.

    How soon can these problems start? If you’re more than 15 days late paying your mortgage, your lender could charge you a 5% late fee penalty. Let it continue to 30 days late, and you may get reported to credit agencies and see your credit score drop. If you’re still not paying after 90 days, the lender could start a notice of default and set a date to get your loan current.  If that isn’t met, foreclosure proceedings could begin.

    If you’ve gone through pre-purchase credit counseling, some of what you’ve learned there will be covered in mortgage delinquency counseling. Your finances will be reviewed and a monthly budget will be created.

    Credit counselors will also:
    • Discuss forbearance or refinancing
    • Help with an exit strategy if you need to move
    • Create an action plan
    • Mediate calls between you and lenders, if necessary

    Mortgage delinquency counseling is usually free with HUD-approved credit counseling agencies.

    Rental Assistance Credit Counseling

    If you’re having difficulty paying your rent or finding affordable housing, you’re not alone. In 2015, 38% of all renter households were rent burdened, meaning they spent at least half of their monthly income on rent, according to a 2018 report by The Pew Charitable Trusts. The biggest percentage of these households were African-American or headed by someone 65 or older.

    Rental assistance credit counseling from HUD-approved counseling agencies is free and is aimed at helping renters:
    • Review finances
    • Connect with local renter’s assistance resources
    • Create an action plan
    • Help with an exit strategy if rental assistance isn’t enough and the best option is to move

    Choosing a Mortgage & Home Loan Credit Counselor

    If you’re shopping for your first home, delinquent on your mortgage, considering a reverse mortgage, or need help paying your rent, there’s a credit counseling service designed to help you understand and better deal with the cost of housing.

    When you’re looking for a credit counseling agency, look for a nonprofit one that is certified by the NFCC and HUD. Most credit counseling agencies offer their services over the phone or online.

    Agencies can charge fees for all of the types of counseling services listed above, but those participating in HUD’s Housing Counseling Program aren’t allowed to charge for foreclosure prevention and homeless counseling services.

    Whatever type of homeowner counseling services you choose, follow the counselor’s advice as well as you can. They can help you get your financial life in order so you can afford one of life’s basic needs: shelter.

    Bill Fay

    Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at bfay@debt.org.

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