USDA financing provides first-time homebuyers with a great way to buy a home with little money out of their pocket upfront. While the USDA does offer flexible underwriting guidelines for households that meet the income restrictions, they have a hard and fast rule that all first-time homebuyers must complete homebuyer education.
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Keep reading to learn how this process works.
What is Homebuyer Education for USDA Financing?
Homebuyer education provides potential borrowers with the knowledge they need before becoming homeowners. Proper education provides lessons on:
- Shopping for a home
- Buying the home
- How to secure proper financing
- Tips for owning a home
The classes provide potential borrowers with the skills to assess their own readiness to buy and own a home. A majority of the training focuses on the financial aspect of owning a home, ensuring that first-time homebuyers know what they are about to start.
In addition to discussing the financial aspect of becoming a homeowner, the classes cover the various types of USDA loans available to borrowers. This is why it’s crucial for potential homebuyers to take the course as soon as they express an interest in buying a home and before they start shopping for their home.
The Type of Classes
The USDA endorses a variety of classes across the country, but they do place preference on certain classroom styles over others.
The USDA prefers potential buyers to take in-person classes either in a classroom setting with other homebuyers or in a one-on-one format with a counselor. The USDA also endorses video chat counseling or interactive telephone counseling that lasts for at least four hours.
The lowest priority classes are those taking place online. The USDA prefers borrower to exhaust all options of in-person classroom or one-on-one counseling before opting for an online course. If there aren’t in-person classes or counseling opportunities within a reasonable distance, then online courses are accepted.
The class must be taught and provide a certificate of achievement from HUD counselors, National Federation of Housing Counselors, the State House Financing Agency, or the National American Indian Housing Council.
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Reasons to Take Homebuyer Education Early
You may think you don’t need to take the homebuyer education course until you are through the loan process and ready to close. You need to satisfy the requirement to get that ‘clear to close’ that you need, but that’s not the reason you should take the course. The homebuyer education courses provide a lot of information for borrowers to help them make an informed decision.
The USDA highly recommends borrowers to take the course even before they get pre-approved for a loan for the following reasons:
- It helps you understand the types of financing available. Just because you meet the USDA eligibility guidelines doesn’t mean it’s the right loan for you. The course can help you explore your options.
- You will learn how to determine if you are ready to go from renting to owning.
- You will learn the techniques necessary to budget the necessary money to purchase a home.
- You will learn the techniques necessary to budget owning a home long after buying it.
- They teach tips and tricks to shop for the right home. The USDA has specific restrictions, including location, type of home, and condition of the home that could affect your ability to buy it using USDA financing.
- You will learn about the loan processing, underwriting, and closing process so that there aren’t any unpleasant surprises when you start the process.
- They teach you about the average closing costs that you can expect and help you understand your options for paying them.
- They conduct general credit counseling as well as cover the issues that can arise with pre-foreclosure and foreclosure proceedings.
- They cover general topics regarding life as a homeowner including the cost of maintenance and repairs as well as homeowner warranties.
The course gives you all-around knowledge about becoming a homeowner so that you can make an informed decision. Just knowing that you are pre-qualified or even pre-approved for a loan doesn’t mean that you are ready to become a homeowner. The thorough homebuyer education helps you understand all aspects so that you can decide if now is the right time for you.
You Must Complete Homeownership no Sooner Than Two Years Before Purchasing
The USDA-approved course that you take will provide you with a Certificate of Completion, which also includes the date that you took the course. Most lenders will accept a certificate for up to two years after you take it.
If your education is more than two years old, though, the USDA considers it too old and will require you to take it again. This is important as many topics/techniques could change in that time as the mortgage industry is constantly evolving.
While it may seem like a pain that you have to take homebuyer education as a first-time USDA borrower, it is for your own benefit. The education will help you become a well-rounded and well-educated borrower. You can enter homeownership confidently and hopefully decrease your risk of default on your home by applying the strategies offered to you in the course.