Home loans are about to go on the discount rack for first-time buyers willing to spend a few hours learning the ropes of homeownership, from applying for a mortgage to choosing a contractor for a kitchen remodel.
The Homeowners Armed with Knowledge program, or HAWK, was announced by the Federal Housing Administration last month as a way for homebuyers to cut their mortgage insurance premium costs by attending housing counseling classes. The idea is that the more borrowers understand about home ownership, the less likely they are to default on their loans, reducing the risk for FHA.
After two years with no delinquent payments, the homeowner qualifies for another discount.
Borrowers who take the classes, which include several courses before and after closing, can save an average of $325 a year, or nearly $10,000 over the life of the loan.
“It may not seem like it, but $10,000 is a lot of savings for a $30,000-a-year household,” said Kimber White, state government affairs chairman for the Florida Association of Mortgage Professionals. “It can make the difference between qualifying or not qualifying to buy a home.”
A public comment period on the program will end in mid-August, and White believes borrowers will be able to begin applying by year’s end.
FHA doesn’t write loans, it insures them, and typically targets underserved populations. Borrowers can get an FHA-backed loan with as little as a 3.5 percent down payment and a credit score of 560. Conventional loans can require 20 percent down and a minimum credit score of 620, White said.
Credit scores from the Fair Isaac Corporation, or FICO, range from 300 to 850. The average FICO credit score in Florida is about 635, according to a survey by CreditKarma.com of its customers.
“Most people who are buying a home don’t know anything,” White said. “They have a little bit of money in the bank and a decent credit score and want a house.”
Under the program, borrowers who take the housing counseling class before signing a contract to buy a home, and who complete additional counseling before finalizing the sale, can earn a 50 basis-point reduction in upfront mortgage insurance and a 10 basis-point reduction in the annual premium cost. Upfront mortgage insurance premiums are 1.75 percent of the total loan amount, while annual monthly premium costs are 1.35 percent.
An additional 15 basis-point reduction will be awarded after two years with no delinquencies.
“If you talk about the long-term impact and how much it will save homeowners, this will absolutely help,” said Kevin Maher, who teaches first-time homebuyer classes and is the community outreach director for West Palm Beach, Fla.-based DebtHelper.com. “I think this will bring more people to the homebuyer classes, which will help them make better decisions.”
The classes will be taught by agencies approved by the U.S. Department of Housing and Urban Development. To find housing counseling agencies in your area, go to HUD.gov.