HUD Exam - Housing Affordability Questions with correct Answers

All of the following are true statements about upfront costs associated with renting and buying, except; A. Renters generally pay a security deposit upon signing a lease. B. The average cost due upon signing a lease for a rental is typically between 20% of the monthly rent.. C. Closing costs are typically comprised of lender fees, discount points, title insurance, home inspection fees, escrow deposit, property taxes, private mortgage insurance, and attorney's fees. D. A client who desires to purchase a home worth $150,000 could be required to pay $7,000 in standard closing costs. - Answer- B. The average costs due upon signing a lease for a rental is typically 20% of the monthly rent. -This statement is not true. However, the figure of 20% is relevant for those considering buying a home (down payment). A couple, the Smiths, recently scheduled a meeting with Rebecca. They have owned their home for seven years and have accumulated some equity in the home. However, they are now struggling to pay their mortgage, because the wife left her full-time job when she had a baby. Her husband's salary is paid in installments of $900 a week, which are subject to deductions and other withholdings. Each month, they pay $1,000 in principal and interest, $110 for taxes, $130 for insurance, and $20 in homeowners assessments. What is their current front-end ratio (as a whole number with no decimal point)? - Answer- 32% Formula: Gross monthly income = Total weekly pay before deuctions x 52 / 12 Front end ratio = Monthly housing expenses / Gross monthly Income. One option that Rebecca suggests to the Smiths is to sell their home and rent a home that is smaller and more affordable. If the Smiths decide to do this, they will no longer have a mortgage, so what is the maximum amount that they can afford to pay in rent and renters insurance each month? Tip: Recall that the husband 's salary is paid in installments of $900 a week, which are subject to deductions and other withholdings. - Answer- $1,170 If the Smiths sell their home and purchase a more affordable property, what is the maximum amount that is affordable for the Smiths to pay in PITIA each month if they obtained a conventional loan? Tip: Recall that the husband 's salary is paid in installments of $900 a week, which are subject to deductions and other withholdings - Answer- $1,092 The Smiths explain to Rebecca that they've already found a smaller, more affordable home they've considered buying. It would cost them $990 each month in PITIA. Considering they pay $210 in car loan obligations, $50 in student loan payments, and a minimum of $80 total in credit card payments each month, and assuming all of these loan payments will be recurring for more than ten months, what would their back-end ratio be if they purchased the home? - Answer- 34% Typically, what is the maximum back-end ratio that the Smiths could have in order to be approved for a conventional mortgage? - Answer- 36% If the Smiths decide to apply for a new loan to buy the more affordable home, which would support the approval of their application? A. Insufficient capital to cover the down payment B. Poor credit history C. inconsistent employment D. High gross annual income - Answer- D. High gross annual income A client has $25,000 in savings and a credit score of 740. She plans to keep some savings in reserves and has identified additional funds to cover closing cost. He/She would like to buy a $100,000 home and is steadily employed. What loan option would be best for this client? - Answer- Conventional Another client would like to buy a $100,000 home and is steadily employed. This client has $2,000 in ssavings and a credit score of 600. His family makes 60% AMI. He lives in a small rural town and would like to buy a farm. What loan option would be best for this client? - Answer- USDA A client has $2,500 in savings and a credit score of 690. Family members have offered to contribute to down payment costs to help him buy the home. - Answer- FHA Another client, Michael, is contemplating applying for an adjustable rate mortgage. All of the following would be accurate and applicable information for his counselor to share with him, except: A. The interest rate can go down, but it is also as likely to go up. B. Michael can request for the interest rate to adjust at any time. C. There are caps on how much the interest rate can adjust. D. If Michael chooses to use his VA benefit, he can take out an ARM. - Answer- B. Michael can request for the interest rate to adjust at any time. - The bank determines when the interest rate adjusts. Sara is almost ready to purchase her first home. Which criteria would decrease the likelihood that she could obtain an affordable mortgage? A. She has saved $10,000 and is looking to purchase a home for $150,000. B. Almost 6% of her monthly income goes to paying her student loans. C. Her credit score is 577 due to several collection accounts. D. Her debt-to-income ratio is 33% - Answer- C her credit