When you think you might be ready to buy your first home, who do you talk to first? Before going to a loan officer or a realtor, there's one other professional you should consult: a homeownership advisor or a financial coach.
Pa Lor, Homeowner Development Manager with Twin Cities Habitat for Humanity, says a financial coaching session is an essential step that helps first-time homebuyers start the process on the right foot. Here's what you can expect from your first financial coaching session with your homeownership advisor and how to make the most of this valuable resource.
What you should know first about financial coaching
- A financial coach/homeownership advisor is not a loan officer. Loan officers are representatives of a financial institution. They're in charge of evaluating and recommending approval for loan applications. A financial coach is someone who helps you understand your finances, set your goals, and work toward healthy financial habits – skills you'll need as a homebuyer and homeowner.
- Financial coaching is for everybody. No matter how much or little you know about your financial situation, financial coaching is a way to make the right moves toward your homebuying goals. Pa shares that some financial coaching clients are "pretty much ready [to buy a home], and all they might need is a Home Stretch course to go over topics like credit, budgeting, working with real estate agents and lenders, home inspections, and what to expect at closing. Other people might need a lot more than one or two financial coaching sessions to get ready to buy a home."
- You and the financial coach are both there to learn. You're there to learn about how to qualify for a mortgage and own a home; the financial coach is there to learn about your resources, goals, and to support you as you pursue what you want out of homeownership.
What to expect from your first financial coaching session
A financial coaching session typically begins as a one-on-one discussion between you and the coach. One of the objectives of financial coaching is to build a personal relationship between the homebuyer and the coach. Your financial coach will ask questions about your income, credit history, spending habits, and your motivations for becoming a homeowner to start building that relationship.
"You're talking about something really personal," Pa says. "Sometimes, you don't want to expose your financial situation to other people. If we just point out what's wrong with your finances, we'll never build trust. That's why we never judge you based on how ready or not ready you are to buy a home – we want to meet you where you are."
Here are a couple of things your first financial coaching session is likely to cover:
- An overview of what financial coaching is (and isn't). Again, a financial coach is not a lender – a financial coach can't approve or deny your loan application or tell you whether or not your application will be approved. Financial coaches help you assess your financial profile, understand mortgage criteria and establish action plans to assist you in achieving mortgage readiness and qualifying for a mortgage.
- A review of your current financial situation. Your financial coach will ask if you understand your credit, income, debts, and more homebuying financial basics. This conversation helps your advisor establish a baseline of what knowledge you bring. It is common for you and your advisor to review a copy of your credit report and budget together to better assess opportunities and challenges.
- Creating an action plan to achieve your goals. Your homebuying goals will look different from other first-time homebuyers. "Some clients want us to tell them exactly what goals they should set," Pa says. "Others want to decide for themselves and work with their advisor to strategize how to get there." Your action plan is co-developed with your advisor based on the financial goals you have and the different mortgage readiness items you want to focus on at the moment. Each client has different strengths and challenges and no two action plans will be the same.
- A quick primer on common homebuying terms. When you get ready to buy a home, you'll hear terms like "debt-to-income," "credit history," "credit report," "closing costs," and "fixed rate" and "adjustable rate" mortgages. You might be familiar with some of those, but it's your financial coach's job to get you up to speed on everything else. In Habitat's financial coaching sessions, "We use regular, everyday language," Pa says. "Nothing complicated or confusing. We explain industry terms in a way you can understand."
- An explanation of what it means to be "mortgage-ready." Different mortgages require different criteria for approval. It usually comes down to these main things: employment history, credit score, debt-to-income ratio, collections, judgments, savings for a down payment, and reserves after closing. The specifics on each of those items will vary from one lender to another. All of these things are discussed in a financial coaching session so you build an understanding of what each item is, how it affects you, and strategies towards meeting the desired criteria of lenders.
Whatever your homebuying and financial goals are, financial coaching can get you closer to reaching them. Your first session will be an opportunity for you to get to know the process, what goals you should set, and what mortgage options are right for you. Most importantly, financial coaching is your chance to enter the world of homebuying without fear of failure or penalty.
"Financial coaches show you your options and explain opportunities without making decisions for you," Pa says. "There's no judgment in a financial coaching session."