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How working with a housing counselor can boost your homeownership chances

By Marietta Rodriguez, vice president of National Homeownership Programs
Marietta RodriguezIt’s National Homeownership Month and by most indicators, now is a great time to be in the market to purchase a home. Mortgage rates are extremely low compared to historical averages, home prices have stopped falling and are largely increasing in many communities, and mortgage lenders are slowly but steadily moving to a more equitable position on credit availability. But despite this ‘triple crown’ of factors, home buying –especially first-time home buying – is well below where experts expect. The National Association of Realtors’ Profile of Homebuyers and Sellers survey found that in 2014, the share of purchases for first-time buyers was just 33 percent, compared to the historical average of 40 percent. In March, it declined to 30 percent. So what’s holding consumers back from buying a home today?  

There are a variety of obstacles, but I’ll address three here: the complexity of the home-buying process, the uncertainty involved in buying a fixer-upper, and access to cash for down payments and closing costs.

Home-buying process
67 percent of people consider home buying to be complicated
A 2014 telephone survey commissioned by NeighborWorks found that 67 percent of people consider home buying to be a complicated process. In the wake of the housing crisis, many qualified homebuyers are likely uncertain how to weigh the risks vs. benefits of homeownership. Working with a trained homeownership counselor will help.

A housing counselor works one-on-one with homebuyers, helping them develop a budget, strengthen their credit to maximize their chance of getting the lowest possible mortgage rate, set a realistic timeline for the purchase and connect with other needed experts, including real estate agents and home inspectors.

Importantly, housing counselors don’t stop working with consumers after they’ve bought a home. Counselors also provide post-purchase information that further helps ensure long-term success.

Required rehab

Another obstacle for new homebuyers is the work houses often required before move-in, whether because they were foreclosed upon and remained vacant for extended periods or for other reasons. Buying such homes can be an excellent way to afford an up-and-coming neighborhood; however, the prospect of buying a “fixer-upper” can be daunting.

Fortunately, there are many programs that can make minor repairs affordable. Nonprofit community development groups like NeighborWorks organizations have the knowledge and resources to help buyers obtain one of the most useful loan options for people choosing a fixer-upper: the 203(k) loan, offered by the Federal Housing Administration.

In communities where home prices are very low, buyers struggle on two other fronts. Home sellers prefer purchase offers from investors, who can buy with cash. These investors often can close on the sale more quickly and frequently waive home inspections (bad idea).  While mortgages have become easier to get, buyers who need a loan still have hoops to jump through (that complicated process again!). That puts buyers who need mortgages at a disadvantage.

In addition, in cities where sales prices are below $50,000 for a home, it’s difficult to find a lender willing to make these relatively small-dollar mortgages. That’s why access to loans and other funds necessary to purchase a home is so important. Even when a homebuyer qualifies for an affordable mortgage, a homebuyer needs to have some amount of cash for a down payment. While the cash needed could be as low as 3 percent of the purchase price, many buyers still find it difficult to save the needed cash for that as well as closing costs and immediate expenses such as moving your belongings to a new home.

That’s another good reason to work with a NeighborWorks HomeOwnership Center and other HUD- approved housing counseling agencies:  They can help find and get down payment assistance. The third annual America at Home survey from NeighborWorks America found that nearly 40 percent of adults had not received any information on down-payment assistance programs. The majority of these programs are open to middle-income homebuyers, and they can provide as much as $30,000 to qualifying buyers. When more potential homebuyers – particularly first-time homebuyers -- know about the availability of these programs, the housing market will become even stronger.