Why you might need a first-time homebuyer class

What is a first-time homebuyer class?

Buying your first house isn’t something you typically study in school, but it’s a major financial step that you will want to be educated on. Taking a first-time homebuyer class can help you feel confident in making decisions throughout the homebuying process.

Some lenders require a first-time homebuyer class because they want to know you’re prepared for the financial commitment. You’ll also need to take and pass a first-time homebuyer course if you’re using certain homebuyer assistance programs.

Miles Tischhauser, a real estate broker at One Source Realty in Geneva, Illinois, said that using a program allowing down payments of 3%-5% means you’ll need to take a first-time homebuyer class. “Most people don’t start thinking about saving up a ton of money for a house right out of college,” he said.

You may take a first-time homebuyer course in person or online. Anyone can sign up for a homebuyer education course through a bank, lender or local organization.

Be sure that if your mortgage type or lender requires it, you’re taking a class that meets the specific requirements.

“Some courses done independently may not be recognized as a certified course for your mortgage,” said John Altizer, senior loan officer at Stonehaven Mortgage in Elmhurst, Illinois. That’s why it’s important to verify that completion of a course will satisfy your lender’s requirement.

If you want to take a do-it-yourself approach to your first-time homebuyer education, aim to find a course that aligns with the National Industry Standards for Homeownership Education and Counseling. That helps ensure you’re receiving quality guidance.

How long is a first-time homebuyer class?

The length of first-time homebuyer classes can vary. Altizer says that some third parties offer basic classes that are only about one hour, either in person or online. These offer general guidance that can be useful, but these often won’t fulfill requirements for conventional mortgages with down payment assistance.

It’s more likely that if you’re required to take a first-time homebuyer class, it’ll last between four and eight hours and you’ll need to pass an assessment.

Fannie Mae and Freddie Mac both offer first-time homebuyer courses that conform to national industry standards. These courses are online and self-paced. Freddie Mac says its course takes approximately three hours to complete, and Fannie Mae’s is also an estimated three to four hours.

Fannie Mae’s HomeView® Homeownership Education Course and Freddie Mac’s CreditSmart® Homebuyer U each fulfill their own requirements for low down payment mortgages.

If you’re using government assistance for your mortgage, you’ll need to attend a first-time homebuyer class approved by the U.S. Department of Housing and Urban Development (HUD).

» MORE: Government home loans: Everything you need to know

How much does a first-time homebuyer class cost?

For those using Fannie Mae or Freddie Mac, the homebuyer class is free to access and you can complete it on your own time. Other homebuyer education courses may come with a cost, but you typically won’t pay more than $100. You can also ask lenders whether they will reimburse you for this fee, though not all will do so.

Altizer said that typically, completion of a first-time homebuyer course results in a small reduction of your mortgage interest rate. Otherwise, the main incentive for completing a first-time homebuyer course is to fulfill the requirements of certain lenders.

What to expect in a first-time homebuyer class

Some first-time homebuyer classes may offer guidance that’s specific to the lender or the type of mortgage. For the most part, though, these courses offer the same general guidance that’s beneficial to anyone planning to buy a home.

Knowing when you’re financially ready

Most homeownership courses provide guidance so that prospective homebuyers can decide if the time is right to buy. This is largely based on your finances, so you’ll consider what type of down payment you can afford and learn how your credit will affect the homebuying process.

In your first-time homebuyer course, you’ll learn the options for buying — whether you have 20% to put down or as low as 3% or even a zero down payment. You’ll find out the minimum credit score and debt-to-income (DTI) ratio to qualify for various types of mortgages.

Taking a close look at your current finances is a helpful result of a homebuyer class. It can reveal to you whether you’re truly ready to buy and whether you’re searching in a good location for first-time homebuyers. Altizer has had clients choose to wait after attending a first-time homebuyer class. He said, “Just because you can do something doesn’t mean you should.”

How the homebuying process works

Many of us have no clue what to expect before we start looking for our first home. A course for first-time homebuyers gives you an overview of each step of the process, from saving for a down payment to getting quotes from lenders to working with a real estate agent. Learning key terms will help you understand what you’re signing up for when you buy a home.

Expect to learn about different types of mortgages and the qualifications and benefits of each. You should understand the documentation you’ll need to apply for a loan and the expected timeline.

Selecting a lender

Choosing a mortgage lender is a key part of the homebuying experience. A good first-time homebuyer class will educate you on the most important questions to ask a lender and encourage you to interview more than one lender. This applies even if you attend a class offered by a specific lender.

Finding a home

While you might browse Zillow in your free time, a first-time homebuyer class can teach you how to choose a real estate professional to work with. That person plays a huge role in finding the right home for you based on financial parameters and other factors.

Making an offer

A first-time homebuyer course should articulate how to go about making an offer on a house. Your real estate agent will be instrumental in this, of course, but the class can also teach you important guidance on evaluating the market, deciding on contingencies and determining how much you’re ready to offer. You’ll also learn how to negotiate price and other sale terms.

Closing on a home loan

You’ll learn what to expect when you close on your home loan. This includes which documents you’ll sign (and there are many). Learn about closing costs and how buyers typically pay them so you’re prepared for that additional cost.

Money management for homeowners

One of the primary goals of first-time homebuyer classes is to help buyers find ongoing success in paying their mortgage on time and factoring in other costs. For example, Freddie Mac’s homeowner course includes a section called “Preserving Homeownership,” intended to teach you about planning for the expected costs as well as unexpected costs like home repairs.

Altizer said these classes “educate the consumer on what goes into a mortgage.” In addition to the mortgage itself, you need to factor in property taxes, interest and mortgage insurance.

» MORE: First-time homebuyer loans and programs

Pros and cons of first-time homebuyer classes

Overall, the biggest reason to take a first-time homebuyer class is to learn about buying a home and gain confidence in your preparedness for the task. The main downside is simply that it takes some time.

Bottom line

First-time homebuyer classes are a valuable resource because they can educate you before you sign up for what is likely a six- or seven-figure financial commitment. Courses are often free and convenient and can teach you important tools for navigating the lengthy and sometimes complicated process of buying a home.

If it’s not a mortgage requirement, there are still ways to DIY a first-time homebuyer class. Sitting down with a real estate professional can be educational, or you can also research the process on your own.