HUD 2025 PRACTICE EXAM QUESTIONS
AND ANSWERS 100% SOLVED
,A client, who is a divorced local school teacher, is interested in purchasing his first
home. He wishes to stay in the same neighborhood where he now lives and to purchase
a home in the low-$100,000 range. He currently leases a car for $435 a month and
would like to buy a new car. The client has a lease on an apartment with his college
friend. Their monthly rent on the apartment, which they split evenly, is $1,100. He has
been working as a teacher for five years and earns $50,000 a year. His divorce was
finalized last year. The housing counselor pulled the client's credit, and he has no debt
except his car payment; however, he has filed for bankruptcy in the past. The client is
worried, because his roommate did not pay a monthly utility bill earlier this year which is
under the client's name. The client's total monthly expenses are $2,162, and he is
current on all other bills. - ANSWERNet Income
The scenario provides the gross income and total expenses, but the counselor needs
the net income to prepare a realistic budget. The lease documentation, the credit score,
and the bankruptcy discharge will not affect the budget.Reference: Module 1.1
BudgetPage Number 4 to 9
Which item in the client's budget is a fixed expense? - ANSWERCar lease payment
A car lease will have a fixed monthly payment. Other expenses—like food, gasoline,
and utilities such as electricity—can vary.Reference: Module 1.1 BudgetPage Range: 4
to 9
With a monthly mortgage payment of $950, which is the client's back-end ratio (round to
the nearest whole percent)? - ANSWER33%
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 =
$1,385Income: $50, = $4,166.67Back-end ratio: $1,385 / $4,166.67 = 0.33 or
33%Reference: Module 2.1 Renting vs. BuyingPage Number 21 to 25
What is the maximum mortgage payment (rounded to the nearest dollar) for which this
client would qualify using a standard conventional loan? - ANSWER$1065.
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? - ANSWER1.75%
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
The client tells the lender that he is expecting a raise soon. Which action should the
lender take? - ANSWERProvide a loan estimate without factoring in the raise
Encouraging the client to flip a loan could indicate that the lender wants to collect
additional fees on a refinance.Lenders should offer loans based on a client's current
ability to pay, not provide a higher loan amount based on a raise that has yet to
materialize. Requiring a client to decide quickly can indicate predatory
lending.Reference: Module 1.4 Protecting AssetsPage Number 4 to 6
If the client was denied a mortgage loan and the lender told him to come back after his
divorce had been final for three years, what is the best advice for the housing counselor
to provide to the client? - ANSWERContact the Federal Trade Commission as the
lender's action might violate the Equal Credit Opportunity Act
This lender is violating the Equal Credit Opportunity Act (ECOA), which states: Federal
law requires lenders to make credit available equally without discrimination based on
race, color, religion, national origin, age, sex, marital status, or receipt of income from
public assistance programs. This client's marital status of 'single' or 'divorced' should
have no effect on the approval of the mortgage loan. The housing counselor should
advise the client to contact the Federal Trade Commission, as that is the appropriate
regulatory body for ECOA violations.Reference: Module 4.1 Pre-PurchasePage Number
28 to 28
The client is interested in lowering his utility costs. If the client seeks an FHA Energy
Efficiency Mortgage (EEM) loan, what is the maximum housing payment for which he
can qualify (round to the nearest dollar)? - ANSWER$1,375
To calculate the maximum housing payment, multiply the appropriate front-end ratio by
the gross monthly income. The front-end ratio for an FHA EEM loan can stretch to 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. BuyingPage Number 22 to 22
, The client is second-guessing his decision to buy a home, so the counselor asks a
series of questions. Which response would best align with the homeownership option
for this client? - ANSWERClient wants to customize his home with do-it-yourself
projects.
Although some landlords might allow tenants to make improvements to the home, the
ability to perform home improvement projects usually requires owning the home. Since
the client currently lives with a roommate, he is unlikely to lower monthly housing costs
by moving. The client could move closer to his school and have a pet in a different
apartment. Reference: Module 2.1 Renting vs. Buying Page Number 6 to 10
The client is considering renting an apartment with a different landlord. Which would be
an upfront cost of moving to the new apartment? - ANSWERApplication fee
Typically, renting involves a fee associated with an application. A down payment is a
direct cost for buying a home. Although a small percentage of renters may engage an
attorney to review the lease, attorney's fees are typically included in closing costs when
buying a home. Maintenance is an ongoing cost, although it more often is associated
with buying a home than renting one. Reference: Module 2.1 Renting vs. BuyingPage
Number 7 to 9
As part of their ongoing conversation about renting versus buying, the counselor and
client review down payment assistance programs to determine if he is eligible. Eligibility
requirements for downpayment assistance programs usually include which factors? -
ANSWERIncome, homebuyer education and/or counseling, purchase price
Eligibility varies depending on the program but is typically based on income, pre-
purchase education and/or counseling, and the price of the property being purchased.
Employment status is not considered, because homebuyers can have income and not
be employed. Age of the homebuyer is not considered because it is not a DPA
requirement and it could violate the Equal Credit Opportunity Act. Family size is not a
criterion in and of itself, as it is included in the income calculation.Reference: Module
2.2 Affordable Housing OptionsPage Number 16 to 19
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?
- ANSWERClient 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.Reference: Module 2.2 Affordable Housing
OptionsPage Number 16 to 19
AND ANSWERS 100% SOLVED
,A client, who is a divorced local school teacher, is interested in purchasing his first
home. He wishes to stay in the same neighborhood where he now lives and to purchase
a home in the low-$100,000 range. He currently leases a car for $435 a month and
would like to buy a new car. The client has a lease on an apartment with his college
friend. Their monthly rent on the apartment, which they split evenly, is $1,100. He has
been working as a teacher for five years and earns $50,000 a year. His divorce was
finalized last year. The housing counselor pulled the client's credit, and he has no debt
except his car payment; however, he has filed for bankruptcy in the past. The client is
worried, because his roommate did not pay a monthly utility bill earlier this year which is
under the client's name. The client's total monthly expenses are $2,162, and he is
current on all other bills. - ANSWERNet Income
The scenario provides the gross income and total expenses, but the counselor needs
the net income to prepare a realistic budget. The lease documentation, the credit score,
and the bankruptcy discharge will not affect the budget.Reference: Module 1.1
BudgetPage Number 4 to 9
Which item in the client's budget is a fixed expense? - ANSWERCar lease payment
A car lease will have a fixed monthly payment. Other expenses—like food, gasoline,
and utilities such as electricity—can vary.Reference: Module 1.1 BudgetPage Range: 4
to 9
With a monthly mortgage payment of $950, which is the client's back-end ratio (round to
the nearest whole percent)? - ANSWER33%
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 =
$1,385Income: $50, = $4,166.67Back-end ratio: $1,385 / $4,166.67 = 0.33 or
33%Reference: Module 2.1 Renting vs. BuyingPage Number 21 to 25
What is the maximum mortgage payment (rounded to the nearest dollar) for which this
client would qualify using a standard conventional loan? - ANSWER$1065.
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? - ANSWER1.75%
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
The client tells the lender that he is expecting a raise soon. Which action should the
lender take? - ANSWERProvide a loan estimate without factoring in the raise
Encouraging the client to flip a loan could indicate that the lender wants to collect
additional fees on a refinance.Lenders should offer loans based on a client's current
ability to pay, not provide a higher loan amount based on a raise that has yet to
materialize. Requiring a client to decide quickly can indicate predatory
lending.Reference: Module 1.4 Protecting AssetsPage Number 4 to 6
If the client was denied a mortgage loan and the lender told him to come back after his
divorce had been final for three years, what is the best advice for the housing counselor
to provide to the client? - ANSWERContact the Federal Trade Commission as the
lender's action might violate the Equal Credit Opportunity Act
This lender is violating the Equal Credit Opportunity Act (ECOA), which states: Federal
law requires lenders to make credit available equally without discrimination based on
race, color, religion, national origin, age, sex, marital status, or receipt of income from
public assistance programs. This client's marital status of 'single' or 'divorced' should
have no effect on the approval of the mortgage loan. The housing counselor should
advise the client to contact the Federal Trade Commission, as that is the appropriate
regulatory body for ECOA violations.Reference: Module 4.1 Pre-PurchasePage Number
28 to 28
The client is interested in lowering his utility costs. If the client seeks an FHA Energy
Efficiency Mortgage (EEM) loan, what is the maximum housing payment for which he
can qualify (round to the nearest dollar)? - ANSWER$1,375
To calculate the maximum housing payment, multiply the appropriate front-end ratio by
the gross monthly income. The front-end ratio for an FHA EEM loan can stretch to 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. BuyingPage Number 22 to 22
, The client is second-guessing his decision to buy a home, so the counselor asks a
series of questions. Which response would best align with the homeownership option
for this client? - ANSWERClient wants to customize his home with do-it-yourself
projects.
Although some landlords might allow tenants to make improvements to the home, the
ability to perform home improvement projects usually requires owning the home. Since
the client currently lives with a roommate, he is unlikely to lower monthly housing costs
by moving. The client could move closer to his school and have a pet in a different
apartment. Reference: Module 2.1 Renting vs. Buying Page Number 6 to 10
The client is considering renting an apartment with a different landlord. Which would be
an upfront cost of moving to the new apartment? - ANSWERApplication fee
Typically, renting involves a fee associated with an application. A down payment is a
direct cost for buying a home. Although a small percentage of renters may engage an
attorney to review the lease, attorney's fees are typically included in closing costs when
buying a home. Maintenance is an ongoing cost, although it more often is associated
with buying a home than renting one. Reference: Module 2.1 Renting vs. BuyingPage
Number 7 to 9
As part of their ongoing conversation about renting versus buying, the counselor and
client review down payment assistance programs to determine if he is eligible. Eligibility
requirements for downpayment assistance programs usually include which factors? -
ANSWERIncome, homebuyer education and/or counseling, purchase price
Eligibility varies depending on the program but is typically based on income, pre-
purchase education and/or counseling, and the price of the property being purchased.
Employment status is not considered, because homebuyers can have income and not
be employed. Age of the homebuyer is not considered because it is not a DPA
requirement and it could violate the Equal Credit Opportunity Act. Family size is not a
criterion in and of itself, as it is included in the income calculation.Reference: Module
2.2 Affordable Housing OptionsPage Number 16 to 19
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?
- ANSWERClient 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.Reference: Module 2.2 Affordable Housing
OptionsPage Number 16 to 19
