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HUD 2024 Practice Exam/135 Questions and Answers
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HUD 2024 Practice Exam/135 Questionsand Answers
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. - -Net
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? - -Car 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)? - -33%
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? - -
$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? - -1.75%
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? - -Provide 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? - -Contact 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)? - -$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? - -Client 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? - -
Application 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? - -Income, 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? - -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.Reference:
Module 2.2 Affordable Housing OptionsPage Number 16 to 19
-The client only tracks bill payments. Which should the housing counselor
recommend to help the client begin planning for a home purchase? - -Track
all income and expenses
Even though the client has been doing well financially, the housing counselor
still should develop a budget with her. With a budget, the client can better
track her income and expenses, and she will be able to adjust her spending
when she stops working her second job.Reference: Module 1.1 BudgetPage
Number 4 to 9
-Which additional information should the housing counselor request from the
client to determine her readiness to purchase a home? - -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-PurchasePage Number 6 to 10
-Does this client meet a lender's expectation for continued employment? - -
Yes, because the client has been at her job over two years
Lenders typically verify that a borrower has been in the same job or same
field for at least two years. The client has been a paralegal for five years, so
she meets the criterion. Reference: Module 2.1 Renting vs. Buying Page
Number 25 to 26
-Based on the client's income, savings, and credit score of 700, which
mortgage option is likely best for her? - -Conventional loan
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