Homebuying 101

More than 13 years ago my then-fiancée and I spent a long Saturday and Sunday sitting in the living room of a big house on a hill in Westchester County. Alongside us were other engaged couples who listened as a priest held forth from the front of the room. Today I have scant recollection of what was actually said during the process known as Pre-Cana, in which couples who are to be married in a Roman Catholic church must participate in a workshop-style preparatory course. I surely didn't agree with everything he had to say. But I do remember thinking that in an age of Vegas-style quickie weddings, when celebrity magazines pay big dollars for photos of stars’ hurried nuptials, there is something to be said for placing a speed bump on the way to the altar, and for an intermediate step that calls for some thought and reflection.

There's a similar process that new homebuyers can engage in. It's called prepurchase counseling, and it has a similar aim: to get would-be buyers to better understand and reflect on the commitment they're about to make. The goal, as with Pre-Cana, is to help everyone make sure they're not getting into a situation they might regret.

Homebuyer counseling has been around since at least the 1960s. It's generally available from consumer credit counseling agencies, and it's often required for borrowers who are participating in specialized loan programs for low-income buyers. Writing in NEWSWEEK a few weeks ago, my colleague Temma Ehrenfeld and I described how the ongoing foreclosure crisis has led to the creation of a presidential commission to try to improve Americans' financial literacy. For new homebuyers, prepurchase counseling can be one way to boost this knowledge.

But with thousands of Americans now facing the possibility of foreclosure, the mortgage industry is focusing on folks who are already in trouble. Most counseling programs are designed for existing homeowners who have fallen behind on their mortgages and need professional help to sort out their options and advocate on their behalf with a mortgage lender. In an ironic twist, The Wall Street Journalrecently reported that many of the people being hired for this job are out-of-work mortgage brokers, some of whom sold homeowners the problematic loans in the first place.

But in the wake of the credit crisis, it's clear that more homebuyers would benefit from counseling before they sign that mountain of mortgage documents.

Typical is the program offered by Acorn Housing, a company focused on community reinvestment. Would-be homebuyers attend a group session where an instructor goes over the basics of real estate purchase. Attendees fill out some financial information forms, give a counselor permission to pull their credit reports, and sign up for a one-on-one session. "We'll look at your income and expenses, figure out what you can afford, figure out if you have problems and what would be a strategy to fix it," says Bruce Dorpalen, Acorn's director of housing. While some people who come in for counseling are right on the brink of a home purchase, Acorn recommends that homebuyers come in before they even start house hunting, in order to give themselves time to fix mistakes on their credit reports and gain a better understanding of what they can really afford. Oftentimes these counseling programs are paid for via grants from the U.S. Department of Housing and Urban Development and provided to consumers at low or no cost.