Recently we reported on a study conducted by FHA/HUD that examined the effects of pre-purchase counseling for house hunters. According to a May press release, HUD No. 12-085, the Pre-Purchase Counseling Outcome Study, “enrolled 573 individuals seeking pre-purchase counseling services in fall 2009 from 15 HUD-funded counseling agencies across the country.”
“The objectives of the study were to examine the characteristics of pre-purchase counseling clients, the types of services they received, and whether and under what circumstances they purchased housing in the 18 months after starting counseling.”
The results of this study have been published by the FHA and HUD, and for those on the fence about whether or not to take advantage of such counseling services, the data is quite convincing. Potential FHA borrowers who find themselves in the situations mentioned below should seriously consider taking advantage of FHA/HUD approved pre-purchase housing counseling services.
According to the FHA/HUD official site, “Most study participants were planning to purchase a home within one year (74 percent) and were motivated to seek counseling to identify homebuyer assistance programs (58 percent) or to obtain down payment or closing cost assistance or to qualify for a specific loan program (58 percent).” Are you within a year of purchasing a home or applying for pre-approval for an FHA insured home loan?
“Most study participants started pre-purchase counseling early in the home buying process (only 15 percent had a signed purchase agreement), had not received any kind of housing counseling or financial education within the past 3 years (66 percent) and received education on topics related to homeownership readiness, help with budgeting and improving their credit, financing a home, and shopping for a home.” This study seems to suggest it’s a good idea to get your pre-purchase housing counseling as soon as you can once you’ve committed to buying a home. But why?
Part of the reason is because of what FHA loan applicants learn about the preparations required to be fully ready to apply for a home loan. FHA mortgages require a minimum down payment, plus closing costs and other expenses. Knowing what these expenses are and how to budget for them can make a huge difference when it comes time to make an offer on a home. Don’t forget that to be the best-prepared loan applicant, you’ll need to pull your credit reports and look into lowering your debt-to-income ratio. This takes time, and the earlier you start preparing, the better off you’ll be.
Other findings from the study include the following: “About one third (35 percent) of the study participants had become homeowners 18 months after seeking pre-purchase counseling. Those participants who had become homeowners had higher average incomes, more money in savings, and higher credit scores and were more likely to be employed full-time and have a college degree than non-purchasers.”
The study also found, “Most purchasers had a FICO score of 620 or higher (71 percent), had a signed purchase agreement (31 percent), were reported as having completed counseling by their housing counselor (72 percent), and were assessed as “mortgage-ready” by their housing counselor (66 percent).” Being–or becoming–mortgage ready is one of the main goals behind pre-purchase counseling for FHA home loan applicants. Do you know if you’re mortgage ready? Don’t be afraid to find out. The earlier you get started, the better off you’ll be when it comes time to search for your new home.
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