How well do you really understand the home-buying process?
Taking a qualified home-buying class will do more than teach you how to get a mortgage or pull together a down payment. It will help you determine the amount of home you can afford without endangering other lifetime financial goals.
If you think this training is just for first-timers, think again. Real estate markets change, and so do home-buying environments. It is worth considering taking a class each time you’re making a home purchase, especially if it has been a significant number of years between purchases. The home-buying class can keep you up to date on what you’ll need to know this time around.
Where can you find these courses? Many private lenders offer their own training, but governments, local, state and federal, are the main source for instructional classes for home buyers. In fact, on both the public and private side, these classes are often tied to special loans or funding assistance for the qualified.
Most home buyer trainings are free. If you’re asked to pay, get an explanation for what those costs cover.
The U.S. Department of Housing and Urban Development (HUD) provides a online list of approved state and local agencies that offer a range of home buyer education options. Some even help first-time buyers obtain grants and other financial assistance with their down payments.
The Department of Veterans Affairs (VA) and Department of Agriculture (USDA) also offer assistance and educational programs for qualified buyers. Meanwhile, Fannie Mae and Freddie Mac also support their own home-buyer education options.
Here are some of the major topics a thorough home-buying class should cover:
* Home-buying readiness. Explore the general questions around a home-buying decision, such as why you want to settle in a particular area, how long you plan to stay, what kind of property you’re considering and where you are in your career and lifestyle. You may also be asked to answer specific financial questions to support your thinking, which should not be shared with others.
* Budgeting and credit. These courses will help you evaluate how you handle money. Do you have a budget? If not, do you know how to create one? Do you understand your credit rating and what goes into determining your score? If you have debt, how are your efforts going to pay it off? Essentially, what you don’t know about spending and borrowing can limit your ability to buy a home.
* Pre-approval for mortgage financing. Navigate the nitty-gritty of the loan process: What a mortgage is, the various types of mortgages, how they work and what it takes to be pre-approved for a mortgage. Pre-approval involves filling out a full mortgage application, typically with a fee to cover an extensive credit check as if you were actually buying a home. Pre-approval, unlike pre-qualification, allows a potential borrower to receive a loan commitment for a specific amount, which can grease the wheels in a potential purchase.
* Knowing what you can afford. Analyze the above and consider the reality of what kind of property you can really afford to buy. Look at price limits and locations and ways to get more for your money, including specific local, state and federal borrowing programs you may qualify for. Buying your dream home can seem nice, but it can turn into a nightmare if you can’t afford the home while living within your means.
* Your home search. Determine how, when and where to shop for specific properties within the neighborhoods you are interested in and how to get the best overall deal for what you’re buying.
* What you’ll need to close. Buying a home can also include an introduction to the specific regulatory and cost environment where you’re planning to live. For example, your course should take you through such things as community-specific housing laws and zoning restrictions that could affect what you’ll be investing in the property, property tax issues (particularly if an assessment is pending), your home titling process, inspection requirements and the other costs linked to legal processes and paperwork.
* The aftermath. A solid home-buying class should give you a wide picture of the costs you’ll face after the sale and how to manage them so you don’t put the rest of your finances in jeopardy. Being too “house poor” not only puts you at a risk of losing the property, it can threaten other important financial goals.
Bottom line: Since the mortgage industry collapse in 2008, it’s been a new day in residential home buying.
Whether you’re buying your first home or beyond, taking a home-buyer education class can help you understand the mortgage process, improve your credit and shop smarter for a home you can actually afford.
* Editor’s note: Nathaniel Sillin directs Visa’s financial education programs. Follow him on Twitter, @PracticalMoney.
