Homebuyer education courses: when you need one and how to pick it

When Fannie Mae requires it

Fannie Mae's Selling Guide requires homeownership education for certain loans, including:

• loans where no borrower has a credit score, in specific cases described in the guide;
• HomeReady purchases when all occupying borrowers are first-time homebuyers; and
• purchases with loan-to-value ratios above 95 percent when all borrowers are first-time homebuyers.

The same rules apply to construction-to-permanent loans processed as purchases. Other investors, FHA and assistance programs have their own rules, so ask each one what it requires.

Which courses count

Fannie Mae lets any qualified third-party provider, independent of the lender, give the course, as long as the content is aligned with National Industry Standards for Homeownership Education and Counseling or HUD standards. The course can be in person, online, by phone or a mix.

The lender must confirm the course meets those standards and keep a copy of your completion certificate. That is why it pays to ask your lender which providers it accepts before you start. Assistance programs often name specific providers, sometimes requiring an in-person class.

Housing counseling as an alternative

Housing counseling is individual help from a counselor at a HUD-approved agency. A counselor can review your budget and credit, explain programs available in your area and help you prepare a plan. Fannie Mae accepts housing counseling completed before closing in place of the education requirement, as long as it is provided by a HUD-approved agency and meets HUD standards.

HUD's website lets you search for approved agencies by location. Many offer services free or at low cost.

What a good course covers

Look for a course that covers:

• building a budget that includes taxes, insurance, maintenance and dues;
• how credit scores and debt-to-income ratios affect a loan;
• comparing loan types and Loan Estimates;
• the roles of agents, inspectors, appraisers and title companies;
• what happens at closing and in the first year of ownership; and
• how to avoid scams, including wire fraud.

Timing and practical tips

Take it early. Courses are most useful before you shop, and finishing early removes a closing risk.

Keep the certificate. Save it as a file and note the date. Some programs require completion within a set period before closing.

Ask about cost. Fees vary. Some assistance programs or lenders cover the cost.

Use the counselor. If you have questions about credit or a program, a one-on-one session can be worth more than the class.

Getting the most from the course

Treat the course as more than a box to check. Bring your own numbers: your monthly budget, your credit report and, if you have one, a Loan Estimate. Note questions as you go about anything that applies to your situation, such as how assistance programs in your area work or how to compare loan offers. If the course offers a follow-up session with a counselor, use it to talk through your specific plan. Keep your completion certificate with your loan documents, and send a copy to your lender as soon as you receive it so it does not hold up underwriting.

The bottom line

Fannie Mae requires homeownership education for some first-time buyer loans, and many assistance programs do too. Ask which providers and formats count, take the course early, and keep the certificate. Even when it is optional, a good course or a counseling session can save you from costly mistakes.