HUD Housing Counseling Exam with verified || || || || || ||
detailed answers ||
Back-end ratio - ✔✔The back-end ratio (or debt-to-income ratio) compares total debt to gross
|| || || || || || || || || || || || || ||
monthly income. The client's only debt is a $435 lease payment, so the $950 mortgage payment
|| || || || || || || || || || || || || || || ||
brings his total monthly debt to $1,385. He earns $50,000 per year, which equals $4,166.67 per
|| || || || || || || || || || || || || || || ||
month. The client's total current expenses divided by gross monthly income equals 52%. The
|| || || || || || || || || || || || || ||
client's combined current housing payment and car payment divided by gross monthly income
|| || || || || || || || || || || || ||
equals 24%. ||
Calculation:
Debt: $435 + 950 = $1,385 || || || || ||
Income: $50, = $4,166.67 || || || || ||
Back-end ratio: $1,385 / $4,166.67 = 0.33 or 33% Reference: Module 2.1 Renting vs. Buying
|| || || || || || || || || || || || || ||
Page Number 22 to 24 || || || ||
Max Front-End Ratio/Back-End Ratio for Conventional Loan - ✔✔The maximum front-end ratio
|| || || || || || || || || || || ||
for a standard conventional loan is 28%, and the back-end ratio is 36%. The front-end ratio is
|| || || || || || || || || || || || || || || || ||
calculated as 28% of the client's monthly income of $4,167, which is $1,167. The back-end ratio
|| || || || || || || || || || || || || || || ||
is calculated as 36% of the client's monthly income of $4,167 minus the client's monthly debt of
|| || || || || || || || || || || || || || || || ||
$435, which equals $1,065. Therefore, the maximum loan payment that the client qualifies for is
|| || || || || || || || || || || || || || ||
the lower of the two numbers, which is $1,065
|| || || || || || || ||
.Reference: Module 2.1 Renting vs. Buying || || || || ||
Page Number 11 to 24 || || || ||
The client is considering an FHA mortgage. What is the upfront mortgage insurance premium
|| || || || || || || || || || || || || ||
(UFMIP) for an FHA mortgage? - ✔✔Effective January 2015, the upfront mortgage insurance
|| || || || || || || || || || || || ||
premium (UFMIP) is 1.75% for FHA mortgages. The annual MIP for FHA mortgages ranges
|| || || || || || || || || || || || || ||
between 0.8% and 1.05%. USDA loans charge an up-front Guarantee Fee of 2%.
|| || || || || || || || || || || ||
Reference: Module 2.2 Affordable Housing Options || || || || ||
Page Number 13 to 13 || || || ||
,Maximum Housing Payment Calculation - ✔✔To calculate the maximum housing payment,
|| || || || || || || || || || ||
multiply the appropriate front-end ratio by the gross monthly income. The front-end ratio for an
|| || || || || || || || || || || || || || ||
EEM loan is 33%, and the gross income is $50,000 divided by 12, or $4,167 per
|| || || || || || || || || || || || || || || ||
month.Calculation: 0.33 multiplied by $4,167 equals $1,375.Multiplying the front-end ratio for a || || || || || || || || || || || ||
rental (30%) would result in a payment of $1,250.Multiplying the traditional back-end ratio for
|| || || || || || || || || || || || || ||
EEM loans (45%) would result in a payment of $1,875 minus the debt of $435 equaling $1,440.
|| || || || || || || || || || || || || || || || ||
Therefore, the front-end ratio applies because it results in a lower payment.
|| || || || || || || || || || ||
Reference: Module 2.1 Renting vs. Buying || || || || ||
Page Number 11 to 24 || || || ||
The client decides to purchase a townhouse through a down payment assistance program with a
|| || || || || || || || || || || || || || ||
recapture clause. Three years later, the client remarries, and his wife owns a single family home.
|| || || || || || || || || || || || || || || ||
Which situation might cause an accelerated loan payment?
|| || || || || || ||
A. Client moves to his wife's home and rents his townhouse to a tenant.
|| || || || || || || || || || || || ||
B. Client moves to his wife's home and the townhouse loan is assumed by an eligible buyer.
|| || || || || || || || || || || || || || || ||
C. Client's wife moves into the townhouse and rents her house to a tenant.
|| || || || || || || || || || || || ||
D. Client's wife moves into the townhouse and sells her house to a qualified buyer. - ✔✔A. Client
|| || || || || || || || || || || || || || || || || ||
moves to his wife's home and rents his townhouse to a tenant.
|| || || || || || || || || || ||
Many down payment assistance programs (DPAs) require owner occupancy. The recapture clause
|| || || || || || || || || || || ||
is triggered when the husband rents or sells the townhouse, but the loan can be assumed by an
|| || || || || || || || || || || || || || || || || ||
eligible buyer. ||
Which additional information should the housing counselor request from the client to determine
|| || || || || || || || || || || || ||
her readiness to purchase a home?
|| || || || ||
- Expenses
||
- Pre-qualification letter
|| ||
- Current lease
|| ||
- Planned family size - ✔✔Expenses
|| || || || ||
,The counselor must create a budget to determine if the client can afford to purchase a home, and
|| || || || || || || || || || || || || || || || || ||
expenses must be identified in order to create a realistic budget.Reference: Module 4.1 Pre-
|| || || || || || || || || || || || ||
Purchase
Page Number 5 to 9 || || || ||
Lenders typically verify that a borrower has been in the same job for how many years? - ✔✔2
|| || || || || || || || || || || || || || || || ||
What demographic are FHA loans designed for? - ✔✔Based on the client's income and down
|| || || || || || || || || || || || || || ||
payment, she is well positioned for a conventional loan which offers the most favorable terms for
|| || || || || || || || || || || || || || || ||
her situation. FHA or USDA loans are designed for lower income buyers with less funds available
|| || || || || || || || || || || || || || ||
for down payment, while a subprime loan is designed for buyers with poor credit who are
|| || || || || || || || || || || || || || || || ||
ineligible for other loans. || || ||
The client thinks her cost of living is going to be the same if her mortgage payment and her rental
|| || || || || || || || || || || || || || || || || || || ||
payment are comparable. What are three recurring costs associated with homeownership that are
|| || || || || || || || || || || || ||
not part of home rental?
|| || || ||
> Homeowners insurance, property taxes, home repairs
|| || || || || ||
> Car insurance, property taxes, cable bill
|| || || || || ||
> Property taxes, renters insurance, utility bill
|| || || || || ||
> Utility bill, car insurance, renters insurance - ✔✔Homeowners insurance, property taxes, and
|| || || || || || || || || || || || ||
home repairs are part of home ownership expenses. Other options contain one or more costs not
|| || || || || || || || || || || || || || || ||
exclusive to home ownership. || || ||
Housing Ratio Calculation of 28% || || || ||
Income: $56,400 - ✔✔Using her stated Gross Annual Income of $56,400 and the given Housing
|| || || || || || || || || || || || || || ||
Ratio of 28% calculate her maximum mortgage payment as follows:
|| || || || || || || || || ||
$56,400/12=$4,700
, $4,700*.28= $1,316 ||
Which is the minimum percentage of the purchase price that the client needs to make as a down
|| || || || || || || || || || || || || || || || || ||
payment to avoid having to pay mortgage insurance with a conventional mortgage?
|| || || || || || || || || || ||
> 3.50%
||
> 10%
||
> 20%
||
> 22% - ✔✔With a conventional mortgage, the client needs to put at least 20% down in order to
|| || || || || || || || || || || || || || || || || || ||
avoid having to pay mortgage insurance. That means the loan-to-value (LTV) ratio needs to be
|| || || || || || || || || || || || || || ||
80% or less. || ||
Which factor determines whether the client will have to pay private mortgage insurance versus
|| || || || || || || || || || || || || ||
mortgage insurance premium? || ||
> Type of loan
|| || ||
> Size of loan
|| || ||
> Loan-to-value ratio
|| ||
> Credit score - ✔✔Private mortgage insurance (PMI) relates to conventional loans, and
|| || || || || || || || || || || || ||
mortgage insurance premiums (MIP) are associated with FHA loans. Factors that could influence
|| || || || || || || || || || || || ||
the cost of PMI include the loan size, loan-to-value ratio, and client's credit score.
|| || || || || || || || || || || || ||
If the client submits a loan application, which document should she receive within three business
|| || || || || || || || || || || || || || ||
days?
> Loan Estimate
|| ||
> Closing Disclosure
|| ||
> Uniform Residential Loan Application
|| || || ||
detailed answers ||
Back-end ratio - ✔✔The back-end ratio (or debt-to-income ratio) compares total debt to gross
|| || || || || || || || || || || || || ||
monthly income. The client's only debt is a $435 lease payment, so the $950 mortgage payment
|| || || || || || || || || || || || || || || ||
brings his total monthly debt to $1,385. He earns $50,000 per year, which equals $4,166.67 per
|| || || || || || || || || || || || || || || ||
month. The client's total current expenses divided by gross monthly income equals 52%. The
|| || || || || || || || || || || || || ||
client's combined current housing payment and car payment divided by gross monthly income
|| || || || || || || || || || || || ||
equals 24%. ||
Calculation:
Debt: $435 + 950 = $1,385 || || || || ||
Income: $50, = $4,166.67 || || || || ||
Back-end ratio: $1,385 / $4,166.67 = 0.33 or 33% Reference: Module 2.1 Renting vs. Buying
|| || || || || || || || || || || || || ||
Page Number 22 to 24 || || || ||
Max Front-End Ratio/Back-End Ratio for Conventional Loan - ✔✔The maximum front-end ratio
|| || || || || || || || || || || ||
for a standard conventional loan is 28%, and the back-end ratio is 36%. The front-end ratio is
|| || || || || || || || || || || || || || || || ||
calculated as 28% of the client's monthly income of $4,167, which is $1,167. The back-end ratio
|| || || || || || || || || || || || || || || ||
is calculated as 36% of the client's monthly income of $4,167 minus the client's monthly debt of
|| || || || || || || || || || || || || || || || ||
$435, which equals $1,065. Therefore, the maximum loan payment that the client qualifies for is
|| || || || || || || || || || || || || || ||
the lower of the two numbers, which is $1,065
|| || || || || || || ||
.Reference: Module 2.1 Renting vs. Buying || || || || ||
Page Number 11 to 24 || || || ||
The client is considering an FHA mortgage. What is the upfront mortgage insurance premium
|| || || || || || || || || || || || || ||
(UFMIP) for an FHA mortgage? - ✔✔Effective January 2015, the upfront mortgage insurance
|| || || || || || || || || || || || ||
premium (UFMIP) is 1.75% for FHA mortgages. The annual MIP for FHA mortgages ranges
|| || || || || || || || || || || || || ||
between 0.8% and 1.05%. USDA loans charge an up-front Guarantee Fee of 2%.
|| || || || || || || || || || || ||
Reference: Module 2.2 Affordable Housing Options || || || || ||
Page Number 13 to 13 || || || ||
,Maximum Housing Payment Calculation - ✔✔To calculate the maximum housing payment,
|| || || || || || || || || || ||
multiply the appropriate front-end ratio by the gross monthly income. The front-end ratio for an
|| || || || || || || || || || || || || || ||
EEM loan is 33%, and the gross income is $50,000 divided by 12, or $4,167 per
|| || || || || || || || || || || || || || || ||
month.Calculation: 0.33 multiplied by $4,167 equals $1,375.Multiplying the front-end ratio for a || || || || || || || || || || || ||
rental (30%) would result in a payment of $1,250.Multiplying the traditional back-end ratio for
|| || || || || || || || || || || || || ||
EEM loans (45%) would result in a payment of $1,875 minus the debt of $435 equaling $1,440.
|| || || || || || || || || || || || || || || || ||
Therefore, the front-end ratio applies because it results in a lower payment.
|| || || || || || || || || || ||
Reference: Module 2.1 Renting vs. Buying || || || || ||
Page Number 11 to 24 || || || ||
The client decides to purchase a townhouse through a down payment assistance program with a
|| || || || || || || || || || || || || || ||
recapture clause. Three years later, the client remarries, and his wife owns a single family home.
|| || || || || || || || || || || || || || || ||
Which situation might cause an accelerated loan payment?
|| || || || || || ||
A. Client moves to his wife's home and rents his townhouse to a tenant.
|| || || || || || || || || || || || ||
B. Client moves to his wife's home and the townhouse loan is assumed by an eligible buyer.
|| || || || || || || || || || || || || || || ||
C. Client's wife moves into the townhouse and rents her house to a tenant.
|| || || || || || || || || || || || ||
D. Client's wife moves into the townhouse and sells her house to a qualified buyer. - ✔✔A. Client
|| || || || || || || || || || || || || || || || || ||
moves to his wife's home and rents his townhouse to a tenant.
|| || || || || || || || || || ||
Many down payment assistance programs (DPAs) require owner occupancy. The recapture clause
|| || || || || || || || || || || ||
is triggered when the husband rents or sells the townhouse, but the loan can be assumed by an
|| || || || || || || || || || || || || || || || || ||
eligible buyer. ||
Which additional information should the housing counselor request from the client to determine
|| || || || || || || || || || || || ||
her readiness to purchase a home?
|| || || || ||
- Expenses
||
- Pre-qualification letter
|| ||
- Current lease
|| ||
- Planned family size - ✔✔Expenses
|| || || || ||
,The counselor must create a budget to determine if the client can afford to purchase a home, and
|| || || || || || || || || || || || || || || || || ||
expenses must be identified in order to create a realistic budget.Reference: Module 4.1 Pre-
|| || || || || || || || || || || || ||
Purchase
Page Number 5 to 9 || || || ||
Lenders typically verify that a borrower has been in the same job for how many years? - ✔✔2
|| || || || || || || || || || || || || || || || ||
What demographic are FHA loans designed for? - ✔✔Based on the client's income and down
|| || || || || || || || || || || || || || ||
payment, she is well positioned for a conventional loan which offers the most favorable terms for
|| || || || || || || || || || || || || || || ||
her situation. FHA or USDA loans are designed for lower income buyers with less funds available
|| || || || || || || || || || || || || || ||
for down payment, while a subprime loan is designed for buyers with poor credit who are
|| || || || || || || || || || || || || || || || ||
ineligible for other loans. || || ||
The client thinks her cost of living is going to be the same if her mortgage payment and her rental
|| || || || || || || || || || || || || || || || || || || ||
payment are comparable. What are three recurring costs associated with homeownership that are
|| || || || || || || || || || || || ||
not part of home rental?
|| || || ||
> Homeowners insurance, property taxes, home repairs
|| || || || || ||
> Car insurance, property taxes, cable bill
|| || || || || ||
> Property taxes, renters insurance, utility bill
|| || || || || ||
> Utility bill, car insurance, renters insurance - ✔✔Homeowners insurance, property taxes, and
|| || || || || || || || || || || || ||
home repairs are part of home ownership expenses. Other options contain one or more costs not
|| || || || || || || || || || || || || || || ||
exclusive to home ownership. || || ||
Housing Ratio Calculation of 28% || || || ||
Income: $56,400 - ✔✔Using her stated Gross Annual Income of $56,400 and the given Housing
|| || || || || || || || || || || || || || ||
Ratio of 28% calculate her maximum mortgage payment as follows:
|| || || || || || || || || ||
$56,400/12=$4,700
, $4,700*.28= $1,316 ||
Which is the minimum percentage of the purchase price that the client needs to make as a down
|| || || || || || || || || || || || || || || || || ||
payment to avoid having to pay mortgage insurance with a conventional mortgage?
|| || || || || || || || || || ||
> 3.50%
||
> 10%
||
> 20%
||
> 22% - ✔✔With a conventional mortgage, the client needs to put at least 20% down in order to
|| || || || || || || || || || || || || || || || || || ||
avoid having to pay mortgage insurance. That means the loan-to-value (LTV) ratio needs to be
|| || || || || || || || || || || || || || ||
80% or less. || ||
Which factor determines whether the client will have to pay private mortgage insurance versus
|| || || || || || || || || || || || || ||
mortgage insurance premium? || ||
> Type of loan
|| || ||
> Size of loan
|| || ||
> Loan-to-value ratio
|| ||
> Credit score - ✔✔Private mortgage insurance (PMI) relates to conventional loans, and
|| || || || || || || || || || || || ||
mortgage insurance premiums (MIP) are associated with FHA loans. Factors that could influence
|| || || || || || || || || || || || ||
the cost of PMI include the loan size, loan-to-value ratio, and client's credit score.
|| || || || || || || || || || || || ||
If the client submits a loan application, which document should she receive within three business
|| || || || || || || || || || || || || || ||
days?
> Loan Estimate
|| ||
> Closing Disclosure
|| ||
> Uniform Residential Loan Application
|| || || ||
