HUD Housing Counseling Exam with Complete Solutions

Rental Obstacle + Solutions: Low Income - -Some Renters reject people whose Rent would be more than 30% of GMI -Solutions -Apply for Housing Assistance -Expand housing search areas -Get a roommate -Move in w/family or friends Strategies for decreasing expenses and debt - Prioritize "needs over "wants" -reduce or eliminate "wants" -cancel or downgrade services(e.g. cable, telephone) -limit miscellaneous spending - stick to a shopping list - pay off a loan or credit card - move to more affordable housing - change insurance coverage to lower premiums Fair Credit Reporting Act (FCRA) - -Right to know what is your file -Right to dispute incomplete or inaccurate information - Access to your file is limited only to people w/valid need (i.e, creditor, insurer) -You may seek damages from violators (sue) - States have their own rules which additionally project What documents to use when tracking income - -Paychecks, direct deposits slips - If self-employed, income + expenses sheet - Additional income checks or cash - Government benefit letters Site to obtain free credit report - Chapter 13 bankruptcy - Allows individuals w/regular income to develop a plan to repay all or part of their debts over 3 to 5 years can stop foreclose sure proceedings + may delinquent mortgage payments over time Steps to take if victim of identity theft - -Place a fraud alert w/the credit reporting agencies - order credit reports to review + identify inaccuracies - create an identify theft report obtain ID theft affidavit from the FTC - File a police report Fair and Accurate credit Transcription Act (FACTA) - -Right to free annual credit report - Right to place a fraud alert on your credit file - Receipts may not include entirety of credit card #s Four Steps of Asset building - 1.Chose the right bank or credit union account 2. Build savings for emergencies + Large purchase 3. Invest for retirement 4. Take advantage of tax credits Fair credit billing Act (FCBA) - -You can dispute billing errors associated w/credit card account - Must be billed in a timely manner % of factors how they affect credit score - 35% account history 30% amounts owed 15% length of credit history 10% new credit 10% types of credit used Credit reporting agencies on FICO Score - -EQUIFAX - EXPERIAN - TRANS UNION FICO Score - -Credit scores often referred to as = Fair Isaac Corporation Range:300-850 Means test - A bankruptcy qualification that considers income + equity in assets to determine if a client has the ability to repay part of the debt How to fix: Credit Card maxed / too much debt - -Pay down debt + keep balances low - Pay more than minimum - know the balance - check statements How to fix: Delinquencies / collections / Judgments - Get current + pay on time moving forward - sett up payments reminders - adjust budget Factors in determining credit score - -Payments History - Capacity used - Length of credit history - Type of credit used - New credit Inquires - Request initiated by a company or person for a consumer's credit profile information How to fix: Incorrect information on a credit report - Dispute inaccuracies: *Notify credit reporting agencies of inaccuracies + provide supporting documentation * keep records of dispute documentation Steps in creating a budget - 1. Help client identify short + long-term goals 2. Track income 3. Track expenses 4. Adjust goals + budget *increase income *decrease expenses + debt %. 5. Create client action plan Section of Credit Report: Public Records - Items that are listed in the public record, including -bankruptcy - judgments -tax liens - wage garnishments Section of Credit Report: Personal information - Consumer identification information, including: -Name - Social Security number - Addresses -Phone # - Employer's Section of Credit Report: Account / Trade line information - Info about each consumer credit account, including: - payment history - account dates - credit limit - balances owed Payment History - Timely / Late - Payments:Positive: timely - Negative: late - lien, judgment, collection account, charge-off account Type of credit used - Positive: Different types of credit show variety - demonstrates that consumers can manage different types of credit Negative: Fever types show limited profile info - higher risk Length of credit history - -How long a person has bad credit Positive: Longer credit history provides more info for lenders - lower risk Negative- shorter history provides little to no info for lenders - higher risk Capacity Used - -How much of credit available has the person used Positive: low credit utilization = financial management Negative: High credit card balances = poor financial management - maxed out credit cards Strategies to increase income (9) - -Find second job -Work Over time -Negotiate higher salary / wage -Sell assets (e.g. car) -Hold a yard/garage sale -Teach a skill / craft/ activity -Sell a craft _Charge rent (adult +dependents living @ home) -Evaluate tax withholding's (if over-with holding) change to increase income received) Items to include when tracking expenses - Monthly bills (utilities, cell phone, etc.) All Fixed monthly expenses all cash expenses Seasonal or annual expenses (i.e car registration, gifts, holiday season, vacation) Documents to use when tracking expenses - -Bills -Bank statements -Credit cards statements -Records for estimated amount of expected periodic expense Chapter 7 bankruptcy - Liquidation bankruptcy -Process of selling non-exempt assets to repay creditors in Chapter 7 bankruptcy -Must meet w/an attorney to determine ability to repay debts - means test Tips for avoiding predatory lending - 1.Shop for a loan 2.Ask questions 3.Beware of deals that sound to o good to be true 4. Know and understand you financial situation Credit Score - A numerical interpretation of a customer's creditworthiness based on information in his/her credit report How to fix: No credit / Poor credit / Limited Credit - -Open a credit card -Secured credit card Items to include when tracking income - -Regular salary -Temporary jobs -Unemployment compensation -Public assistance Items not to include when tracking income - -Pre -tax payroll deductions -Credit report Things to consider when choosing a bank account - Services Fees- account maintenance, wire transfer, check purchasing, money order, negligence fees - overdraft, stop payments, insufficient funds Fun access features-location, ATM'S, online banking, customer service Common Predatory Lending tactics - 1. Limited time offers 2. High risk loans (consulting / unclear terms) 3. Higher loan amounts (more than person can afford) 4. High fees or cost 5. False of hidden disclosures 6. Loan flipping (encouraged to refinance existing loans) Strategies for advising clients on investing for retirement - -Explain importance of savings for retirement -Highlight the benefits of tax-incentivize accounts Features of a good - Large purchase savings account - For large purchase -Limited accessibility -Good returns- *High-interest savings *Money market *Cd Features of a good emergency fund account - -Liquid-money can be retrieved w/o penalties -Direct deposit or automatic transfer available -Limited accessibility (not tempted to dip into it) i.e.-interest bearing savings accts. money market accts New Credit - Positive: credit applications can lead to new credit accounts or loans, which can establish history over time Negative: too many inquiries or new credit accounts in a short period will raise questions for venders Area Median Income - -The midpoint in the family income range for a metropolitan statistical area or for the non-metropolitan parts of a state -Determinate annually by HUD very low, low, moderate, above moderate Capital - How much money a borrower has saved to pay a deposit or down payment for the home she/he intends to purchase USDA - United States Department of Agriculture rural Development program for people interested in living in eligible rural areas -Low rates, no down payments, low-moderate income -Less than 115% of AMI -Must be w/o adequate housing Capacity - Capacity to pay outstanding debt -The consistency of employment + income -Adequacy of income to repay debt -Recurring debts - Frecuency + type of wages Why would you get a 2nd mortgage? - If don't have enough for 20 % down payment, might get 2nd mortgage for 205 to ensure that PMI is not required Gross Monthly Income - Money earned before taxes + other deductions P I T I A - Principal Interest Taxes Insurance Association Dues Private Mortgage Insurance - Policy that projects a lender from potential risks when a homeowner pays less than 205 for a down payment Homeowner pays monthly payment Front end ratio formula - Monthly housing expenses Gross monthly income 28% affordable for conventional loan 81% guideline for FHA loan 30% for renters Down Payments - Cash payment that home buyers are required to pay when closing on a home loan % of the total price of the home When can you request that a vender remove PMI from monthly payments? - When mortgage balance is 80% of the original value of home Renting recurring costs - -Rental payment -Renters insurance -Monthly cable + utilities fees Equity - Value of ownership interest in property Difference between fair market value of a property + the remaining mortgage balance owed Adjustable Rate Mortgage (ARM) - Initial interest rate for a defined period or time +then adjust pre-determinate intervals for the life of the loan Can increase or decrease, but there are caps to how large the adjustment can be Second Mortgage - Subordinate loan on a property May help lower the amount of the principal mortgage during home purchase Can be taken out at any point of the 1st mortgage to pay for things like repairs, costly purchase, education Fixed Rate Mortgage - Interest rate doesn't fluctuate typically paid off in 30 yrs. Risk of second mortgage - In default, the 1st mortgage takes priority for any possible repayment recuperated through foreclosure = risk for lenders= interest Project-Based Voucher Program - PHAS allocate 20% of its housing choice vouchers for project-based vouchers attached to specific housing units -PHAS contract property owners + subsidize units-owners units towards affordable housing Character - Credit history Employment history Housing stability Determine the likeliness of repaying debt Federal Housing choice voucher program (Section 8) - Federal government's major program for assisting very low income families, the elderly, + the disable to afford decent, safe, + sanitary housing in the private market -distributed by PHA'S -Free to choose housing that meets requirements Public Housing Agencies - A state, country, municipality, or other government agency that develops or operates lows-incomes housing Receive funding from HUD for Program Administration Fair Market Rent (FMR) - -Determination of the monthly rent of a rental property, calculated by HUD -Factored by geography + unit size, it sets payment standards for public housing programs Front end Ratio - Rate that calculates a borrower's housing-related obligations as a percentage of gross monthly income Frequently used by lenders to qualify borrowers for a mortgage Drawbacks of Renting - -Cannot build equity -Have limited control over -Decorating + Major Changes -Forfeit the opportunity for tax benefits Benefits of Renting - -Repair, Maintenance, Yard work, by landlord -Property taxes paid by landlord -More flexibility to more Default - Inability to make timely payments on mortgage When a payments has not been made after 60-90 days Foreclosure - Legal process in which mortgaged property is sold to pay the loan of the defaulting borrower -Laws are based on statutes of each state Loan-to-Value Ratio - Percentage calculated by dividing the amount of the outstanding loan amount by the sales price or appraised value of the home Responsibilities of home ownership - -Make monthly mortgage payments -Up hold standards of homeowners assoc. or community -Carry out home repair / maintenance Government issues Mortgage Loans - -FHA -FV -USDA FHA - Federal Housing Administration -Provides Mortgage insurance on loans made by private FHA lenders -Good for clients who -Have invited funds for down payments -May not quality for conventional due to flawed credit, bankruptcy, DTI ratio -Credit Score as low as 580 Back end ratio formula - = Total monthly debt expenses Gross monthly income Conventional-36% limit FHA or Energy Efficiency- 43% 45% Renting - 36% Requirements for loan approval for self employed - -Period of self employment -2+ years -if between 1+2 years, must show at least 2 yrs. of work before in similar field -2 years. tax returns _YTD p/1 sheet How to determine gross monthly income for self employed - Use average AGI on tax returns or profit/loss statements # of months income counted Used at least 2 years of tax returns Conventional Loan - Mortgage loan backed by private lenders Not insured by any governments program loans w/down payments less than 20% of the purchase price may require private mortgage insurance Drawbacks of home owner ship - -Risk of property value degradation -Limit flexibility of relocation -Accept liability of accidents on property Principal - The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lenders Original loan amount minus the total repayments of principle made Upfront costs for renting - -Application fee -Security deposit -1 st + last months rent Benefits of buying a home - More control of living environment -Settle into a community -Avoid home inspections -Quality for tax benefits -Build equity Mortgage Insurance Premium - Monthly payment, usually past of the mortgage payment for FHA loans, paid by borrower for mortgage insurance What is private Mortgage Insurance? - Projects the lender in case the borrower defaults Escrow - Funds to be used for specific purposes by parties carrying out a mutual transaction, deposited w/ a third party Commonly used by lenders to allocate funds for a homeowner's property taxes insurance premium's + other fees Homeowner's Insurance - Provide coverage's for damages to a dwelling and contents that belong to the homeowner Can also offer protection to homeowners against losses resulting from liability claims Usually mandatory Upfront cost of home ownership - -Down Payments -Closing Costs -Lender fees -Discount points -Discount points -Title insurance -Home inspection fees -Escrow deposit -Property taxes -Private mortgage insurance -Attorney's fees Discount points - A type of pre-paid interest paid at closing + generally calculated to be equivalent to 1% of the total loan amounts Can purchase points rate on mortgage Subprime Mortgage Loans - -Less stringent lending + underwriting terms + conditions -Usually offered to borrowers w/blemished or limited credit histories -Higher interest rates -Caused 2008 recession Interest Only Terms - -Give borrowers the option of paying only the interest on the loan, in monthly payments, for a fixed term -Good for those who prefer a monthly mortgage payments that is lower because income fluctuates -This type of Mortgage can be risky Collateral - Lenders will often request a borrower to pledge specific property or assets as collateral to a lenders to secure repayment of a loan Usually the home the person is purchasing 4 C'S of Credit - -Character -Capacity -Capital -Collateral Back end Ratio (Debt to income ratio) - Borrowers total monthly debt, including housing + other debt obligations, as a percentage of gross monthly income Debt considered under FHA loans - -P I T I A -All debt payments that are revolving or open-ended accts -Closed-ended debts w/recurring payments that extend 10 months or more -All debt payments that will affect the borrower's ability to pay the mortgage during months after loan closing Ground Rent - An arrangement in which the owner of a dwelling or structure does not own the land on which the structure resides Pay mortgage + rent on land When are you required to buy private mortgage insurance - Conventional loans - down payments less than 20% of the loan amount must pay for PMI Lender must automatically terminate PMI when LTV=78% or at the midpoint of the loan Association Dues - Charge by community or homeowners association to pay for repairs, up keep, landscaping, improvements + property management Mortgage insurance on government issued mortgage's - Borrowers pay upfront mortgage insurance premium (UFMIP) +/or annual MIP can be paid upfront or financed into the loan amount Property Taxes - Taxes charge by county in which home is located Usually 1% of value of home annually National HUD Rental Assistance Programs - -Veterans Affairs supportive Housing (VASH) - for homeless veterans -Housing opportunities for persons with AIDS (HOPWA) - for low income people w/AIDS Home Equity Loan - -Provides lump sum of money, often referred to as the second mortgage -Good if your home improvement plan is one large expense, you want to pay off more quickly, you want a fixed rate, you don't have funds available -To use effectively - make payments on time, use only on home improvement project FHA 203K Loan - -Loan insured by the FHA, can be for purchase or home improvements -Good for home w/major repairs -Owners who want to refinance for major repairs Home Equity line of credit (HELOC) - -A line of credit from which you can borrow at any time during the draw period, up to credit limit -Good if your home improvement is multiple expenses, you want lower interest rate, you want more time to pay off loan, funds available for closing costs Should: Get quotes from contractor + request only that amount. Research products + lenders use only for home improvement cancel one paid off Streamlined 203K Loan - -Loan through FHA'S streamlined 203 K program that permits financing of up to $35,000 of mortgage to repair, improve, or upgrade home -Good for minor rehabilitation must meet specific guidelines -Complete within 6 months Don't use for major remodeling new construction repair of structural damage + landscaping Title 1 Loan - Used for alterations, repairs + site improvements on single family homes and for alterations + repairs on multi family homes. Can be used w/203k rehab mortgage -up to $25,000 per family home or nonresidential structure -$12,000 per family unit not exceed $60,000 for multifamily -Fixed interest rate Closing Disclosure - -Originally the HUD-1 settlement statement and the final TILA disclosure, changed under TRID -Designed to help consumers understand all the costs of the transaction, must be provided at least 3 business days before closing Truth in Lending Act (TILA) - -Law requiring that lenders disclose important information to borrowers in a variety of consumer finance transactions -Must provide loan cost info -Includes the ability to pay/qualified mortgage amendment Home ownership and Equity Protections Act (HOEPA) - -Law enforcing special disclosure requirements and restrictions on terms for loans that meet high cost mortgage test -Enacted as on amendment to TILA to address abusive practices in refinances and close-end home equity loans with high interest rates or high fees Loan Estimate - -Originally the Good Faith Estimate (GFE) + the Truth in lending disclosure changed under the TRID -Intended to help consumers understand the very features, costs + risks of the mortgage -Must be provided no later than 3 business days after they submit a loan application Real Estate Settlement Producers Act (RESPA) - -Law prohibiting practices that increase the cost of settlement services -Sellers cannot require home buyers purchase title insurance from a particular company -Governs required mortgage transaction disclosure FHA loss mitigation options - Formal / Informal forbearance special forbearance unemployment FHA loan modification FHA - HAMP Fair Housing Assistance Program - Provides funding to state + local agencies that enforce these additional fair housing protections imposed by state + local laws i.e. sexual orientation, gender identity, source of income, maritial status TILA - RESPA Integrated Disclosure Rule (TRID) overview - -Law amending regulations under the Real State settlement + Producers Act (PRESMA) -Requires easier -to -use mortgage disclosure forms that clearly outline the terms of a mortgage to the borrower and provide detailed explanations about how the forms should be completed and used Services Evaluations + Explanations requirements - -Must be able to tell homeowners the circumstances lender which the services may make a referral to foreclosure -Required to evaluate the borrower for all the foreclosure avoidance options for which the borrower may qualify -Must give specific reasons for denying loan modification option Services contact requirements (for foreclosures) - -Services must make efforts to contact the borrower after 36 days delinquent -Services must efforts to contact the borrower must send borrower written notice before 45 days of delinquency + provide info for housing counseling counselors -Info on risks of delinquency -Updates of foreclosure proceedings -Contact info for housing counseling -Info about loss mitigation Judicial Foreclosure - -Lawsuit-Process Formalized -Service issues homeowner a notice of the lawsuit (summons) -If contested, services +homeowner go before a judge + present arguments -Judge can order trial Service can't take action until judge rules -If not cured, auction sale scheduled Non-Judicial Foreclosure - -Courts not involved-communication occurs between homeowner + services -In most states, services issues a notice of Default (NOD) -If delinquency not cured, homeowner receives notice of sale (NOS) 90 days after NOD Gives homeowner 5-10 days before sale date to cure the delinquency -Once period for reinstatement ends, service schedules sale -Auction sale Options to reduce financial burden of foreclosure - Financial assistance to use for relocation costs -Tax relief from paying taxes on the banks losses in the foreclosure -Can request the option for a deficiency judgments be removed FHA Loss Mitigation options - 1. Attempt to bring the mortgage current 2. Determine eligibility for informal + formal forbearance plans 3. Determine eligibility for special forbearance unemployment 4. Determine eligibility for a loan modification 5. Determine eligibility for FHA HAMP 6. Coinsider a decd-in-lieu 7. Consider a decd-in-lieu Service Members Civil Release Act - Projects military personnel and their dependents in issues related to housing, including certain protections against default judgments, foreclosure + eviction