Many home buying programs for either distressed borrowers, first-time homebuyers are those getting a unique loan, are required to go through homeownership counseling or classes but is it really worth it and does it make a difference?
Government programs such as Freddie Mac and Fannie Mae have advocated for this homebuyer education but it's been difficult to determine how much it actually helps potential homebuyers.
Homebuyer counseling certainly can prevent some of the mistakes made during the housing boom such as buying a home you simply can't afford and responsibilities of home maintenance and finances, however, these studies of the impact it of counseling have produced conflicting and inconclusive results and of even raised questions about the effectiveness of borrower education.
Most of the studies have only been observational. There is current data on 40,000 participants in the Freddie Mac's Affordable Gold Loans Program observing borrowers who receive classroom and home study counseling. The study shows that these people had up to 26% reductions in their subsequent rates of serious delinquency. Borrowers who received individual counseling, however, averaged a 34% reduction.
These studies can get expensive and tricky as people are divided into different treatment groups and control groups. Participants and results can vary greatly from the simple fact that certain people are willing to participate while others feel it's not necessary. Does this mean that those who receive counseling are more likely to purchase a home or take on debt or that they will rent longer and build up a large down payment? Will their credit scores rise?
In 2014, the Federal Reserve Bank of Philadelphia reported on a "five-year controlled study on prepurchase education. The study included only first-time homebuyers who are not previously applied for a mortgage, received prior counseling or were under contract to purchase a home or in a program that required counseling."
Both of these groups including the treated group and the control group received a two-hour workshop as well as a workbook including information on preparing for homeownership. It also included how to shop for home and a mortgage, applying for a mortgage and the final closing and settlement states.
The treatment group was given one-on-one counseling for their budget, home buying and other services from the counseling agency. 29% of these participants opted to use some of the extra services provided.
The control group's credit score rose 8.5 points after the workshop while the treatment group raises their score to 16.2 points after the training. During the five-year experiment some participants in each group bought houses so then the groups were further divided into homeowners and not homeowners. The treatment group regardless of their homeownership status, continue to have credit score increases about twice as much as the two control group cohorts.
Non-homeowners increase their total debt over the five years but the treatment group increased more than the control group. Homeowners actually decrease their total debt and those in the treatment group decreased the most. Analyst felt that perhaps not homeowners felt more able to take on debt because they didn't have the burden of a mortgage.
Researchers also found that there was an effect on credit performance. Regardless of homeownership, the treatment group showed greater changes in the share of delinquencies of alterations to the control group.
In conclusion, there is a belief that supports prepurchase homeownership counseling but definitely was in favor of the two-hour workshop and one-on-one counseling. Large treatment groups, while helpful, still can't compare with the one-on-one counseling.
For information on homeownership counseling in the Portland area please contact my office today. Going through these workshops and finding ways to save money, make your mortgage payment when times get tough and the responsibilities necessary to maintain your homeownership can really benefit you long-term. [Source]