Freddie Mac Credit Smart Exam Complete Study Guide &
Practice Questions (Latest 2026-2027)
Pass your housing counselor certification on the first attempt with this comprehensive
study guide for the Freddie Mac CreditSmart Exam. This high-yield resource breaks
down core financial literacy pillars, including credit asset management, debt-to-income
ratios, budgeting strategies, and the modern homebuying process. Eliminate testing
anxiety and master credit underwriting concepts using realistic practice scenarios
modeled directly after the official Freddie Mac training curriculum
QUESTION 1
The percentage of your gross monthly income that goes toward paying for your housing
expenses is called the "housing expense ratio" and is based on the total housing
payment, which includes:
A) Principal and interest only
B) Principal, interest, property taxes, and homeowner's insurance
C) Principal, interest, property taxes, homeowner's insurance, mortgage insurance,
and homeowner's or condo association fees
D) Principal, interest, and property taxes only
*Rationale: * The housing expense ratio (front-end DTI) includes PITIA—Principal,
Interest, Taxes, Insurance, and Association fees. Lenders use this to determine how much of
your gross income goes toward housing costs .
QUESTION 2
Lenders don't include your future housing payment in your debt-to-income ratio, only
all other outstanding debts.
A) True
B) False
*Rationale: * Lenders include BOTH your future housing payment AND all other
outstanding debts when calculating your total debt-to-income (DTI) ratio. This gives a
complete picture of your monthly obligations .
,QUESTION 3
The principal amount is the total amount borrowed.
A) True
B) False
*Rationale: * Principal is the actual loan amount borrowed before interest is added. It is
the base amount on which interest is calculated .
QUESTION 4
Do lenders use gross income or net profits when calculating mortgage affordability for
self-employed borrowers?
A) Gross income
B) Net profits
C) Total revenue
D) Personal spending
*Rationale: * Self-employed borrowers qualify based on net business income after
expenses, as shown on tax returns. Lenders use the average of the last two years of net
profit .
QUESTION 5
An escrow account is a special account managed by the borrower that holds funds for
property taxes and property insurance payments.
A) True
B) False
*Rationale: * An escrow account is typically managed by the lender or loan servicer, who
pays taxes and insurance on the borrower's behalf. This ensures these large expenses are
paid on time .
,QUESTION 6
Having adequate cash reserves demonstrates to your lender that you have responsibly
managed your money and have savings and other assets to fall back on in case of
emergency.
A) True
B) False
*Rationale: * Reserves show lenders you can handle unexpected expenses and continue
making payments if income is interrupted. This is part of the "Capital" component of the 4
C's .
QUESTION 7
Capital—or cash to close—refers to the funds you need to save to cover the cost of
down payment and closing costs.
A) True
B) False
*Rationale: * Capital includes down payment, closing costs, and prepaid items required to
complete the home purchase. It demonstrates your ability to invest in the purchase .
QUESTION 8
Acceptable sources of capital include:
A) Funds from a family member
B) Funds from a down payment assistance program
C) Funds from your savings account
D) All of the above
*Rationale: * Gift funds from family, DPA programs, and personal savings are all
acceptable sources. Borrowed funds from unapproved sources are not acceptable .
, QUESTION 9
Lenders consider investments to be (select all that apply):
A) IRAs
B) Bonds
C) CDs
D) Stocks
E) 401(k) plans
*Rationale: * These are liquid or semi-liquid assets that can be used as reserves or sources
of capital. Lenders may consider a percentage of these assets as available funds .
QUESTION 10
To determine if you have adequate savings to obtain a mortgage and sustain
homeownership, lenders will average the last six months of your checking and savings
account balances.
A) True
B) False
*Rationale: * Lenders typically review the most recent 2 months of bank statements, not a
6-month average. They verify sufficient funds for down payment, closing costs, and
reserves .
QUESTION 11
Lenders consider four primary factors when determining whether to approve a loan.
What are they?
A) Income, Assets, Debts, Property
B) Credit, Capacity, Capital, and Collateral
C) Salary, Savings, Credit, Home
D) Character, Cash, Collateral, Credit
Practice Questions (Latest 2026-2027)
Pass your housing counselor certification on the first attempt with this comprehensive
study guide for the Freddie Mac CreditSmart Exam. This high-yield resource breaks
down core financial literacy pillars, including credit asset management, debt-to-income
ratios, budgeting strategies, and the modern homebuying process. Eliminate testing
anxiety and master credit underwriting concepts using realistic practice scenarios
modeled directly after the official Freddie Mac training curriculum
QUESTION 1
The percentage of your gross monthly income that goes toward paying for your housing
expenses is called the "housing expense ratio" and is based on the total housing
payment, which includes:
A) Principal and interest only
B) Principal, interest, property taxes, and homeowner's insurance
C) Principal, interest, property taxes, homeowner's insurance, mortgage insurance,
and homeowner's or condo association fees
D) Principal, interest, and property taxes only
*Rationale: * The housing expense ratio (front-end DTI) includes PITIA—Principal,
Interest, Taxes, Insurance, and Association fees. Lenders use this to determine how much of
your gross income goes toward housing costs .
QUESTION 2
Lenders don't include your future housing payment in your debt-to-income ratio, only
all other outstanding debts.
A) True
B) False
*Rationale: * Lenders include BOTH your future housing payment AND all other
outstanding debts when calculating your total debt-to-income (DTI) ratio. This gives a
complete picture of your monthly obligations .
,QUESTION 3
The principal amount is the total amount borrowed.
A) True
B) False
*Rationale: * Principal is the actual loan amount borrowed before interest is added. It is
the base amount on which interest is calculated .
QUESTION 4
Do lenders use gross income or net profits when calculating mortgage affordability for
self-employed borrowers?
A) Gross income
B) Net profits
C) Total revenue
D) Personal spending
*Rationale: * Self-employed borrowers qualify based on net business income after
expenses, as shown on tax returns. Lenders use the average of the last two years of net
profit .
QUESTION 5
An escrow account is a special account managed by the borrower that holds funds for
property taxes and property insurance payments.
A) True
B) False
*Rationale: * An escrow account is typically managed by the lender or loan servicer, who
pays taxes and insurance on the borrower's behalf. This ensures these large expenses are
paid on time .
,QUESTION 6
Having adequate cash reserves demonstrates to your lender that you have responsibly
managed your money and have savings and other assets to fall back on in case of
emergency.
A) True
B) False
*Rationale: * Reserves show lenders you can handle unexpected expenses and continue
making payments if income is interrupted. This is part of the "Capital" component of the 4
C's .
QUESTION 7
Capital—or cash to close—refers to the funds you need to save to cover the cost of
down payment and closing costs.
A) True
B) False
*Rationale: * Capital includes down payment, closing costs, and prepaid items required to
complete the home purchase. It demonstrates your ability to invest in the purchase .
QUESTION 8
Acceptable sources of capital include:
A) Funds from a family member
B) Funds from a down payment assistance program
C) Funds from your savings account
D) All of the above
*Rationale: * Gift funds from family, DPA programs, and personal savings are all
acceptable sources. Borrowed funds from unapproved sources are not acceptable .
, QUESTION 9
Lenders consider investments to be (select all that apply):
A) IRAs
B) Bonds
C) CDs
D) Stocks
E) 401(k) plans
*Rationale: * These are liquid or semi-liquid assets that can be used as reserves or sources
of capital. Lenders may consider a percentage of these assets as available funds .
QUESTION 10
To determine if you have adequate savings to obtain a mortgage and sustain
homeownership, lenders will average the last six months of your checking and savings
account balances.
A) True
B) False
*Rationale: * Lenders typically review the most recent 2 months of bank statements, not a
6-month average. They verify sufficient funds for down payment, closing costs, and
reserves .
QUESTION 11
Lenders consider four primary factors when determining whether to approve a loan.
What are they?
A) Income, Assets, Debts, Property
B) Credit, Capacity, Capital, and Collateral
C) Salary, Savings, Credit, Home
D) Character, Cash, Collateral, Credit
