UPDATED: Thursday, May 2, 2013 - 1:29pm
(StatePoint) There's a good reason why many people dream of owning a home. Homeownership offers benefits such as stable monthly payments and the opportunity to establish a sense of community. It can also be a way to build equity over time.
But don't dive into the process unprepared. Experts say it's crucial to become financially literate first.
"Educated borrowers are better prepared for successful, long-term homeownership and overall financial stability," says Christina Diaz-Malone, Vice President of Housing and Community Outreach at Freddie Mac.
In fact, a recent study found that financial counseling before purchasing a home can reduce the likelihood of going into default. For first time homebuyers, counseling reduces the likelihood by an average of 29 percent.
Luckily, free credit education resources and information are becoming more widely available.
For example, Freddie Mac's CreditSmart program, a comprehensive, multilingual curriculum used by lenders, churches, schools and non-profit organizations, has helped more than three million consumers across the country make more informed financial decisions. Today it's available in two ways.
CreditSmart's new, self-paced web version features 12 education modules. You can take the free online course at www.FreddieMac.com/creditsmart.
Or, consider attending a class led by a housing counselor certified by the US Department of Housing and Urban Development.
A credit education course can prepare you for homeownership by covering the following topics:
A spending plan is necessary for anyone with financial goals. Financial education can help you differentiate your spending needs vs. wants, and set up a realistic budget accordingly, as well as provide guidance for how to stick with the plan.
Generally speaking, the better your credit, the lower your interest rates and fees will be when obtaining a loan. If you don't have credit or you don't have good credit, it's essential to establish good credit before trying to get a loan.
To buy a home, you'll need upfront money for a down payment, which is usually between five and 20 percent of the home price, and money for closing costs, moving expenses, and any immediate repairs or renovation costs.
Credit education can teach you how to save and how to invest your money wisely.
The real estate and mortgage world has its own language. And if you aren't well-versed in it, you can get in over your head quickly. Study up on terms and concepts like loan-to-value ratio and fixed-rate mortgage so you don't sign anything you don't understand!
Unfortunately, there are unscrupulous companies and individuals out there who may not have your best interests in mind. Reliable financial education can help you recognize the warning signs of fraud. Familiarizing yourself with the resources at www.FreddieMac.com/homeownership/educational/ is a good start.
Ask family and friends for names of real estate agents and lenders with whom they've worked or contact your financial institution or a certified housing counselor for guidance.
Is homeownership right for you? Don't just guess. By becoming a savvier consumer, you can make smart financial decisions.