HUD Housing Counseling Exam
Questions and Answers50
Back-end ratio - ANSWERS-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 - ANSWERS-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? - ANSWERS-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 - ANSWERS-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. - ANSWERS-
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 - ANSWERS-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? -
ANSWERS-2
What demographic are FHA loans designed for? - ANSWERS-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 - ANSWERS-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 - ANSWERS-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% - ANSWERS-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 - ANSWERS-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?
Questions and Answers50
Back-end ratio - ANSWERS-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 - ANSWERS-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? - ANSWERS-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 - ANSWERS-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. - ANSWERS-
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 - ANSWERS-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? -
ANSWERS-2
What demographic are FHA loans designed for? - ANSWERS-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 - ANSWERS-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 - ANSWERS-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% - ANSWERS-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 - ANSWERS-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?
