1. Make sure students understand the concept of “liabilities.”

2. Discuss the importance of keeping accurate records of your liabilities. Explain that a buyer needs to bring this information along to the interview for a loan application.

3. Ask students to name the various kinds of liabilities individuals might have (e.g., credit card debt, car loans, student loans, boat loans, small-business loans).

4. Discuss the importance of minimizing one’s debts before buying a house. For example, a person might not want to buy a new car during the same year he or she is planning to buy a home. (In some cases, a loan with fewer than seven months of payments left may not be counted by a lender in the debt calculation. Check with your local lenders for details.)

5. Divide the students into pairs or small groups to answer the questions to the right

6. Create a blank form similar to the one on this page. Have students complete the form at home to get a better idea of their total liabilities.

Going further
Through a local housing counseling organization, find a counselor who
has helped a first-time home buyer complete a nontraditional credit history for a home loan. Ask him or her to describe what information was required. If possible, invite this person to visit the class to discuss nontraditional credit histories.