5 Ways Credit Counseling Can Help You Buy a Home

If you’re thinking about buying a home, one of the first things you need to understand is whether you’re financially ready to own a home. Understanding how much debt you can take on and having good credit is essential if you want to qualify for a mortgage. It also helps you get the best interest rate.

In a 2023 survey of recent homebuyers, 53% said that debt had caused them to delay buying a home for four years or more. Additionally, issues like having poor credit or a lack of savings can further delay your goal of buying a home.

What’s the solution? For many aspiring homeowners, talking to a credit counselor could be the key. Credit counselors understand the ins and outs of homebuying, can assess where you’re coming up short, and advise you on how to speed up the process. Best of all, many credit counselors offer these services and guidance for free.

What is credit counseling?

Credit counseling is a professional service usually offered by nonprofit counseling agencies. When you connect with a certified credit counselor, you’ll get a personalized assessment of your finances, along with advice on how to best achieve your specific goals. A credit counselor can offer expertise on a range of financial topics, including:

• Understanding credit reports and scores
• Learning how to budgeting
• How to manage debt
• Navigating how to buy a home

Many nonprofit credit counseling agencies also have HUD-approved housing counselors, and they offer educational resources, including homebuyer education (like the Framework Homebuyer Education course), homebuying workshops, and webinars.

You can meet with a credit counselor in-person, online, or over the phone. To schedule an appointment with a reputable agency, use the National Foundation for Credit Counseling’s Agency Finder tool.

Five ways credit counseling can help you buy a home

Buying a home usually requires a combination of strong credit, steady income, and sufficient savings. Credit counselors offer a variety of services to identify and address areas where you need improvement. Here’s what you can expect.

1. Credit report reviews

Having good credit scores is a major key to getting approved for an affordable mortgage. Yet, many homebuyers are in the dark about how to improve their scores.

One of the only ways to get the education and advice you need is by scheduling a credit report review appointment with a certified credit counselor. During these appointments, your counselor will:

• Read through each item on your credit reports with you
• Answer questions about your reports and scores
• Offer personalized strategies for gaining points

2. Budgeting for a down payment

In 2024, aspiring homebuyers reported that a lack of savings was their biggest obstacle to homeownership. One way a credit counselor can help you overcome this obstacle is through a budget counseling session.This service can be particularly useful for anyone who’s uncomfortable with budgeting or who’s never created a budget before. A credit counselor can go through each line item of your expenses with you and offer new strategies for saving more money.

At the end of your session, you’ll have a complete household budget, plus a personalized action plan for cutting expenses and saving more money for your down payment and closing costs.

3. Strategies for reducing debt

Having too much debt can prevent you from saving money and qualifying for a mortgage. Yes, there are for-profit companies that claim to help with debt issues, but these “debt relief” or “debt settlement” companies often leave you worse off than when you started.

Instead, you can seek out credit counselors for their expertise in debt management. After reviewing each of your debts, a credit counselor can advise you on how to:

• Pay off debt faster and for less money
• Deal with old collections of debt
• Weigh your debt consolidation options
• Communicate with creditors to get better terms

Credit counselors also have a unique resource at their disposal: debt management plans (DMPs). If you’re struggling to manage your debt, you might consider enrolling in a DMP to adjust your monthly payments and get on the path to becoming debt-free in three to five years.

4. Help finding the best loan

In an environment of high interest rates, shopping around to find the best loan offer is more important than ever. Reducing your mortgage rate by just one percentage point could mean saving five-figures on interest over your 30-year repayment.

How can a credit counselor help? A certified credit and housing counselor can advise you on how to research and compare loan offers without damaging your credit scores, and how to use your offers to negotiate the best deal available. They can also walk you through your eligibility for special mortgage programs that have below-market interest rates.

5. Homebuyer-specific counseling

Some credit counseling agencies offer counseling and education that’s specifically tailored to homebuyers. If you participate in their Pre-Purchase or First-Time Homebuyer Counseling, you not only get help improving your credit and managing debt, but additional support can include any of the following:

• Guidance through the mortgage application and home purchase processes.
• Assistance calculating your affordable purchase price.
• Review and breakdown of your mortgage payment, including taxes and homeownership association (HOA) dues.
• Budgeting for post-purchase costs such as moving and home maintenance.

If you complete this homebuyer counseling, you might open the door to even more assistance with your purchase.

Some lenders offer special loan terms to applicants who complete homebuyer education from approved credit counseling agencies. Completing educational courses and counseling could also qualify you for a homebuyer assistance program from a government agency or local nonprofit.