HUD Counseling Exam - Module 2.2 Housing Options EXAM WITH SOLUTIONS 100%

what are the three loan options? - ANSWER 1. conventional mortgage loans 2. subprime mortgage loans 3. government-insured mortgage loans explain a conventional mortgage loan - ANSWER the most common type of mortgage and is backed by private lenders; offers competitive rates and comes in "conforming" mortgage amounts and less common "non-conforming," or jumbo mortgage amounts; 30-year fixed is most common but it can also come in 15-year and 10-year mortgages what is a "conforming" mortgage amount when it comes to conventional loans? - ANSWER limits set by the federal government each year what is a "non-conforming," or jumbo mortgage amount, when it comes to conventional loans? - ANSWER any loan amount or other criteria above the conforming limits conventional mortgages are good for those who: - ANSWER 1. have a good credit history 2. have funds for a down payment and closing costs 3. meet lender-specific qualification requirements regarding income, credit score, and other factors what is another term for conventional mortgage loans? - ANSWER prime loans explain a subprime mortgage loan - ANSWER a type of mortgage with less stringent lending and underwriting terms and conditions, usually offered to borrowers with blemished or limited credit histories; carry higher interest rates which make the monthly payments more expensive; all-in-all, increased financial risk for borrowers subprime mortgage loans are good for those who" - ANSWER 1. have a poor credit history 2. are ineligible for other loans what are the most common government-insured loans? - ANSWER 1. FHA 2. VA 3. USDA what does FHA stand for? - ANSWER Federal Housing Administration what is the FHA? - ANSWER a federal government agency that provides mortgage insurance on loans made by private FHA-approved lenders FHA-insured mortgages may be a good fit for those who: - ANSWER 1. have limited funds for a down payment and closing costs 2. may not qualify for a conventional mortgage loan due to flawed credit history, bankruptcy, or high debt-to-income ratios explain a VA mortgage - ANSWER guaranteed for eligible veterans, active duty personnel, and surviving spouses; offer competitive rates and low or no down payment VA mortgages may be a good fit for those who: - ANSWER 1. are eligible veterans, active duty personnel, and surviving spouses 2. have suitable credit and sufficient income 3. have a valid Certificate of Eligibility what does USDA stand for? - ANSWER United States Department of Agriculture a guaranteed USDA mortgage loan may be good for those who: - ANSWER 1. want to live in eligible rural areas, as defined by the USDA 2. make less than 115% of area median income 3. may need flexible credit guidelines or need to rely on non-traditional credit for qualification 4. may not have funds for a down payment 5. must be without adequate housing explain a USDA mortgage loan - ANSWER offers both guaranteed and direct loans to homeowners interested in living in eligible rural areas explain a guaranteed USDA mortgage loan - ANSWER issued by private lenders and insured by the USDA, they are designed for homebuyers with low- to moderate-income, offer competitive rates, and do not require a down payment explain a USDA direct mortgage loan - ANSWER designed for low to very-low income families, based on AMI, and funded directly by the government how is a USDA direct loan different from a USDA guaranteed loan? - ANSWER 1. homebuyer income must be less than 80% of AMI 2. homebuyers are unable to obtain other financing but have reasonable credit 3. loan terms can go up to 33 years, or 38 years if certain income criteria apply what does AMI stand for? - ANSWER area median income explain interest only mortgages - ANSWER give borrowers the option of paying only the interest on the loan, in monthly payments, for a fixed term; expected increases in income may not materialize, and the principal balance remains the same if only interest payments are paid during the interest-only term interest only mortgages may be good for those who: - ANSWER 1. prefer a monthly mortgage payment that is lower because their income fluctuates but can occasionally make payments toward their principal during the interest-only term what is AMI? - ANSWER the midpoint in the family income range for a metropolitan statistical area or for the non-metropolitan parts of a state; determined annually by HUD what is the AMI used for? - ANSWER 1. used as a basis to stratify incomes into very low, low, moderate, and above moderate 2. frequently used to determine income eligibility for various housing programs what is a fixed rate mortgage? - ANSWER a mortgage, typically paid off in 30 years, that has an interest rate that does not fluctuate; the rate stays the same over the life of the loan what is an adjustable rate mortgage? - ANSWER have an initial interest rate that applies for a defined period of time (typically from one month to ten years) and then adjusts at pre-determined intervals for the life of the loan; there are caps on how large an adjustment can be what does MI stand for? - ANSWER mortgage insurance what is MI? - ANSWER a mortgage insurance premium paid by the borrower to protect the lender in case the borrower stops paying the mortgage; may be tax deductible what is a second mortgage? - ANSWER a subordinate loan on a property; may help lower the amount of the principal mortgage during home purchase, or can be taken out