Credit Counseling for Housing: What It Is and What to Expect

Budgeting, Homeownership, Mortgage Process, Personal Finance
Credit Counseling for Housing: What It Is and What to Expect

Managing your housing — whether you’re purchasing your first home, at risk of losing your apartment or anything in between — can be financially and emotionally draining.

You aren’t in this alone, however. Financial guidance from credit counselors at nonprofit credit counseling agencies approved by the U.S. Department of Housing and Urban Development can help you achieve your housing goals.

To find out how it can help you, look through this list of housing counseling services. You can click on the link to jump straight to the section that suits your situation:

  • Pre-purchase counseling: Mortgage companies may require this for homebuyers. While it’s primarily for first-time homebuyers, lenders may also require it if you’ve had a foreclosure or are otherwise deemed financially at-risk, and some government programs require it.
  • Reverse-mortgage counseling: If you’re a senior looking to get a reverse mortgage, the Federal Housing Administration requires this counseling — also called Home Equity Conversion Mortgage, or HECM, counseling.
  • Delinquent mortgage counseling and rental assistance counseling: If you’ve fallen behind on your mortgage or are in danger of it, delinquent mortgage counseling — sometimes called foreclosure prevention counseling — can help you make a plan to get back on track. Rental assistance counseling can help if you’re having difficulty paying your rent or finding affordable housing and need local resources.
  • Homebuyer education: Your lender may require an education course (in addition to pre-purchase counseling) if you’re a first-time buyer or have had financial trouble in the past. Also, some counseling agencies offer post-purchase counseling on navigating the financial obligations and risks of homeownership.

Pre-purchase counseling

What you’ll learn: First, this one-on-one counseling session will help you establish good financial habits, which can help you get an affordable mortgage and prepare for the financial implications of buying a home. The counselor will give you objective advice on how much house you can afford.

Second, the class serves as a crash course on how various loans work and what you’ll need to get approved for them. You’ll learn the role of creditworthiness in the approval process, how to build up your credit to meet loan requirements and how to avoid predatory loans.

If you’ve had financial struggles related to your housing in the past, your counseling session will have a deeper focus on helping you avoid financial pitfalls like default and how to handle credit responsibly.

“Getting this baseline of education is critical,” says Melinda Opperman, spokeswoman at Springboard Nonprofit Consumer Credit Management. “In the housing crisis, some people tried to shoehorn themselves into houses they couldn’t afford. Now we’re seeing people look for education beforehand.”

At the end of the course, you’ll receive a packet with everything discussed, including your budget, an action plan and a certificate of pre-purchase counseling. The certificate’s expiration date will depend on your lender and where you live.

How you’ll do it: Pre-purchase counseling is typically done through a one-hour phone call with a credit counselor.

What it costs: Costs vary for pre-purchase counseling. Expect to pay between $50 and $130, depending on where and how you receive counseling.

Reverse mortgage counseling

What you’ll learn: A reverse mortgage isn’t right for everyone; this counseling helps you determine whether it’s suitable for you.

“There are risks, obligations and rewards to having a reverse mortgage,” Opperman says. “That’s why it’s important for a senior who’s interested in getting one to get counseling through a HUD-approved agency. We are not obligated to any outcome, whether they get the mortgage or not. We will just give them objective advice.”

You start by going through your income, assets and debt, then complete HUD’s Financial Interview Tool. This 25-question survey acts as a deep dive into your financial situation and will generate a score that estimates your suitability for a reverse mortgage.

You’ll also learn about reverse mortgages, including costs, fees and definitions, as well as how long this type of loan runs. You’ll learn about the responsibilities of managing a reverse mortgage, like keeping up with home repairs and property taxes, and explore alternatives such as selling your house.

How you’ll do it: You can do reverse mortgage counseling either over the phone or in person. You’ll receive a certificate of completion, valid for 180 days, that your loan issuer needs to process your application. Counselors typically check your progress about 45 to 60 days later and can answer questions.

What it costs: Expect to pay around $150 to $200. Fees may be waived or reduced if the counseling agency determines you are eligible after surveying your finances.

Delinquent mortgage and rental assistance counseling

What you’ll learn: The goal of each is to help you maintain stable housing by exploring your options.

  • Delinquent mortgage counseling starts with a thorough review of your finances. You’ll create a monthly budget to put you in a better position to make your housing payments. Your counselor will discuss your options, such as forbearance or refinancing your mortgage, and you’ll work on an action plan to get back on track. Some counseling agencies, like ClearPoint, also offer a second level of delinquent mortgage counseling to help you implement your plan. Your counselor can mediate phone calls between you and your lender, for instance.
  • Rental assistance counseling starts with a similar financial checkup. Then your counselor helps you find local resources, such as assistance from nonprofits, that can stabilize your living situation. “A lot of people who need rental assistance counseling either fall through the crack of not being able to get a rental assistance program such as Section 8 or are on a waitlist for housing, but they can’t afford to pay rent on their own,” says Dawn Enlow, a housing counselor at Money Management International, a nonprofit credit counseling agency. “We connect them with local nonprofit organizations and will help them search for housing in their area.”

At the end of either type of counseling, you will receive a packet with everything discussed, including your action plan. If you need to leave your home, the counselor will help you craft an exit strategy to ease the move.

How you’ll do it: Both delinquent mortgage and rental assistance counseling are generally done over the phone.

Delinquent mortgage counseling starts with a single one-hour session and can be followed up by numerous calls until your situation is resolved.

Rental counseling is typically a single 45-minute session.

What it costs: Both are free at HUD-approved nonprofit credit counseling agencies.

Homebuyer education

What you’ll learn: Expect to go beyond your personal financial situation and get a broader education on the expenses of owning a home.

Pre-purchase education focuses on helping you understand aspects of the homebuying process, like how to choose a real estate agent, prepare for closing costs and navigate homeowners association fees.

Post-purchase education will include discussions on how to manage your loan, what to do if you think you’ll miss a payment and how to manage your budget.

How you’ll do it: You can generally take pre-purchase courses online or in person. The online sessions can be started, stopped or paused at your convenience. In-person homebuyer education is typically done in a class setting, which typically consists of a six-hour educational session and a two-hour counseling session. You can choose to partake in both the educational course and the counseling session or just one of the two, depending on what your lender requires and personal preference.

Post-purchase education is generally done one-on-one and can take 45 minutes to an hour.

What it costs: Expect to pay $25 to $75 for pre-purchase educational courses. Post-purchase counseling is generally free.

Next steps

HUD’s online database lists approved credit counseling agencies that specialize in the different areas of housing counseling.

Take your time choosing a few that look good — and if your mortgage company requires counseling, make sure it will work with the agencies you’re considering. Then vet each counselor to find one you feel comfortable with. Make sure you discuss and understand any fees involved before committing.

Sean Pyles is a staff writer at NerdWallet, a personal finance website. Email: spyles@nerdwallet.com.