HUD Housing Counseling Exam with Complete Solutions!

Back-end ratio - ANSWER-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: $50,000 / 12 = $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 - ANSWER-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? - ANSWER-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 - ANSWER-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. - ANSWER-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 - ANSWER-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? - ANSWER-2 What demographic are FHA loans designed for? - ANSWER-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 >