HUD Housing Counseling Exam 2023/2024
Back-end ratio
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 e...
HUD Housing Counseling Exam 2023/2024
Back-end ratio
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, = $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
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?
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
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.
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
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?
2
What demographic are FHA loans designed for?
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
> Car insurance, property taxes, cable bill
> Property taxes, renters insurance, utility bill
> Utility bill, car insurance, renters insurance
Homeowners insurance, property taxes, and home repairs are part of home ownership
expenses. Other options contain one or more costs not exclusive to home ownership.
,Housing Ratio Calculation of 28%
Income: $56,400
Using her stated Gross Annual Income of $56,400 and the given Housing Ratio of 28%
calculate her maximum mortgage payment as follows:
$56,400/12=$4,700
$4,700*.28= $1,316
Which is the minimum percentage of the purchase price that the client needs to
make as a down payment to avoid having to pay mortgage insurance with a
conventional mortgage?
> 3.50%
> 10%
> 20%
> 22%
With a conventional mortgage, the client needs to put at least 20% down in order to
avoid having to pay mortgage insurance. That means the loan-to-value (LTV) ratio
needs to be 80% or less.
Which factor determines whether the client will have to pay private mortgage
insurance versus mortgage insurance premium?
> Type of loan
> Size of loan
> Loan-to-value ratio
> Credit score
Private mortgage insurance (PMI) relates to conventional loans, and mortgage
insurance premiums (MIP) are associated with FHA loans. Factors that could influence
the cost of PMI include the loan size, loan-to-value ratio, and client's credit score.
If the client submits a loan application, which document should she receive
within three business days?
> Loan Estimate
> Closing Disclosure
> Uniform Residential Loan Application
> Purchase Agreement
Within three days of receiving a loan application, lenders are required to supply the
client with a loan estimate. The other documents are not relevant to the process at this
time.
This client is denied a loan to purchase a home because she has not lived in the
country for at least ten years. Which advice should the housing counselor
provide?
> Report the action to the Federal Trade Commission as it is a violation of the
Equal Credit Opportunity Act
> Report the action to a local fair housing center as it is a violation of the Fair
Credit Reporting Act
, > Report the action to a local fair housing center as it is a violation of the Equal
Credit Opportunity Act
> Report the action to the Federal Trade Commission as it is a violation of the Fair
Credit Reporting Act
The lender's action is a violation of the Equal Credit Opportunity Act, because lenders
cannot discriminate based on national origin.Counselors should have a general working
knowledge of the consumer protections available, particularly the Equal Credit
Opportunity Act. Complaints about Equal Credit Opportunity Act should be filed with the
Federal Trade Commission (FTC)
Based on this client's household budget, as shown in the table below, which
strategy would most likely reduce monthly variable expenses? (Refer to the
budget below as needed.)
> Reduce food expenses by cooking at home more and eating out less
> Sell the car and buy a cheaper one with a lower monthly payment
> Shop for school clothes at discount stores instead of department stores
> Reduce utility expenses by unplugging appliances and adjusting the thermostat
A monthly car payment is a fixed expense, so variable expenses will not be reduced by
a lower car payment. Based on the budget, there is no information for a counselor to
initiate a discussion on clothing expenses. The combined gas and electric expense of
$110 appears reasonable in the absence of information on climate, but the client
spends over $1,000 on food and groceries each month. Combined with the fact that the
client buys breakfast every morning on the way to work, this line item signals a good
place to start for a discussion on reducing monthly variable expenses.
Which additional information would the housing counselor need to prepare the
action plan for this client?
> Documentation of household expenses
> Client's current lease agreement
> Listings for properties the client is interested in purchasing
> Documentation of life insurance payout
The client action plan outlines steps the client and counselor will take in order to
achieve the client's housing goal. The client has identified home purchase as her goal,
so the current lease is not required to create the action plan. Since the credit score and
income are already known by the counselor, the next logical steps are to develop and
verify budget, then to discuss strategies to reduce variable expenses and reallocate
funds toward debt reduction or savings. The price range and life insurance balance has
been established in the scenario, so property listings and a statement of the original
insurance payment would not be helpful in preparing the client action plan.
The client wants to move her family to a lower-priced rental unit to save money
for a home, but is struggling with the upfront fees required to move to a new
apartment complex. Which strategy would be most effective to help the client
secure affordable housing and cover moving expenses quickly?
> Find an individual landlord and negotiate
> Apply for a loan to cover expenses
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