How does homeownership education and counseling work?

In most communities, non-profit organizations provide homeownership education and counseling either as their primary mission or as part of a larger mission. These organizations, many of which are certified by the U.S. Department of Housing and Urban Development as HUD-approved housing counseling agencies, provide classes and individual counseling to help families build knowledge about one or more of a range of topics such as the home-buying process, mortgage options, reverse mortgages, the responsibilities of homeownership, fair housing laws, and other pre-purchase and post-purchase needs. Education and counseling may be conducted in person, via telephone, online, or through other distance-learning formats.

Photo courtesy of Philadelphia Housing Authority

The federal government, through HUD, provides funding to HUD-approved housing counseling agencies to help support their work. Non-profit counseling agencies may also receive funding from NeighborWorks America or through other channels. A 2008 survey of HUD-certified housing counseling agencies [1] found that housing counseling agencies relied on patchwork funding to cover the costs of education and counseling services, with no single source accounting for even a fifth of their overall funding.

What is the role for state and local governments? States and local governments can expand the reach of homeownership education and counseling by providing financial support, broadening access to education and counseling, increasing the range of topics covered, and strengthening program quality.  States and local governments already play a major role in funding for housing counseling.  In 2008, state governments were the third largest funder of housing counseling at nearly 12 percent.  Local governments provided just over 8 percent of funding for counseling services. These funds help education and counseling providers deliver quality services that families need. Communities can help families navigate the homebuying process as well as the main concerns and stumbling blocks that can arise during homeownership by providing access to homeownership education and counseling in each of these areas: pre-purchase education and counseling, post-purchase education and

How is Housing Counseling Funded? Funding Sources and Share of Total Funding for Counseling in 2008 HUD Counseling Funds (13.5%) Other Federal Sources (12.4%) State Government (11.8%) Other Private Sector (10.3%) Financial Institution (9.7%) Local Government (8.3%) CDBG Program (8.3%) Foundation (6.9%) Agency's Own Funds (6.5%) HOME Program (3.3%) Client Fees (3.1%) Intermediary's Own Funds (2.4%) Public Housing Authority (2.0%) Fannie Mae, Freddie Mac, or Federal Home Loan Bank (1.4%) Source: Christopher E. Herbert, Jennifer Turnham, and Christopher N. Rodger. For U.S. Department of Housing and Urban Development [HUD] Department of Policy Development & Research. September 2008. The State of the Housing Counseling Industry: 2008 Report [PDF]. P. 61. Cambridge, MA: Abt Associates.

counseling, reverse mortgage counseling, and foreclosure prevention counseling.

Often marketed to first-time home buyers, pre-purchase education and counseling provides a broad range of information on the home-buying process. Pre-purchase classes may include tips on selecting a real estate agent and a lender, choosing a house and a mortgage in your price range, finding downpayment or closing cost assistance, getting a home inspection, and going to settlement.  Individualized information and assistance on issues like dealing with credit concerns or comparing mortgage terms may be available through pre-purchase counseling.

States and localities may encourage families to learn about the home-buying process by requiring pre-purchase education and counseling for anyone seeking financial assistance from state or local homeownership programs. Learn more about using requirements to expand access to homeownership education and counseling.

Post-purchase education and counseling serves the needs of new or long-time homeowners who are not in danger of foreclosure but want more information to help them be a successful homeowner. Post-purchase courses respond to common homeownership questions, such as how to prepare a budget, what options exist for refinancing, how to do routine home maintenance, and how to handle and afford repairs. Post-purchase classes can also help homeowners recognize and avoid the pitfalls that could otherwise lead to default and foreclosure. Communities can increase access to post-purchase education and counseling by funding non-profit housing counseling organizations or by offering courses through government housing agencies.

The availability of reverse mortgage counseling has expanded recently as demand for reverse mortgages has grown.  Counseling is now offered both in-person and via phone, but counseling may be too brief to be effective for homeowners. A 2008 study found that reverse mortgage counseling was, on average, an hour shorter than refinance or predatory lending counseling.  Phone counseling on reverse mortgages could be as brief as a five to fifteen minute call.   States and localities can help by offering comprehensive reverse mortgage counseling through government housing agencies or departments of aging or by providing supplemental funding to housing counseling agencies to ensure that counselors have sufficient time to educate potential borrowers about the costs of and alternatives to reverse mortgages.  States and localities can also provide basic reverse mortgage information to help consumers better prepare to make the most of their counseling sessions.

Foreclosure prevention counseling (also known as default loan counseling) focuses on the options available for resolving the mortgage delinquency and avoiding foreclosure and often includes money management topics. Since the causes of mortgage delinquency and options for preventing foreclosure vary from family to family, foreclosure prevention information tends to be provided through one-on-one counseling sessions rather than in a classroom setting.

Learn more about foreclosure prevention counseling, including examples and case studies, in the Information and Counseling section of our companion site, Foreclosure-Response.org.

Click on the links below to learn about ways to expand homeownership education and counseling: Expand funding for homeownership education and counseling Despite receiving federal funding, many non-profit homeownership education and counseling providers still struggle with inadequate funding. State and local support could help. Funding for outreach efforts can help working families learn about their options. Help families access homeownership education and counseling The array of organizations competing for the attention of prospective borrowers can be difficult to navigate. Communities can help by providing a single point of entry for homeownership education and counseling or by requiring homeownership counseling in order to access certain types of loans or financial assistance products. Strengthen the quality and scope of homeownership education and counseling Communities may be able to deliver more effective education and counseling by adopting standards of quality for homeownership courses and counselors. States and localities can also help by ensuring that courses are available for post-purchase needs and reverse mortgages. Click here to view other resources on homeownership education and counseling.

[1] The State of the Housing Counseling Industry: 2008 Report [PDF]. September 2008. By Christopher E. Herbert, Jennifer Turnham, and Christopher N. Rodger. For U.S. Department of Housing and Urban Development [HUD] Department of Policy Development & Research. Cambridge, MA: Abt Associates.