Understanding Credit and Housing: A Guide for Clients, Exams of Business Systems

Download Understanding Credit and Housing: A Guide for Clients and more Exams Business Systems in PDF only on Docsity! HUD CERTIFICATION PRACTICE Questions and Correct Answers Graded A+2024 Which document is most important when working with a client to develop an initial budget as part of a Client Action Plan? Pay stub Retirement plan statement List of assets Current lease - Answer Pay stub A client would like purchase a home within one year. The client is motivated to increase household income as a way to save for a down payment and qualify for a loan. Which is the best solution for the client to reach this goal? Find a second job Borrow from retirement fund Sell major assets Find a temporary job through a staffing service - Answer Find a second job A credit report may contain which information? The number of accounts in collection status A history of payments on an electric bill Income history Criminal record - Answer The number of accounts in collection status A credit report contains inaccurate information. Which action item should the counselor include in the Client Action Plan? -Attach a letter to mortgage applications explaining the inaccuracies. -Investigate the reasons why the inaccuracies occurred to determine the responsible party. -Include a personal consumer statement on the credit report. -File a dispute with the appropriate credit reporting agency. - Answer File a dispute with the appropriate credit reporting agency. Six months ago a client left a job as a reporter to start a business in the retail industry. To prepare to buy a house, the client closed credit card accounts and has been using savings to pay down credit card debt and collections. The client has not been able to save much for a down payment with all the debt payments but knows about an affordable home-ownership program that only requires a 1% down payment with an FHA loan. What might result from the client closing the credit card accounts? -It decreases credit utilization, causing a negative impact on the credit score. -It increases credit utilization, causing a negative impact on the credit score. -It increases credit utilization, causing a positive impact on the credit score. -It decreases credit utilization, causing a positive impact on the credit score. - Answer It decreases credit utilization, causing a positive impact on the credit score. Which action would a client take to improve a credit score? -Request to expunge public records -Apply for new credit cards to increase credit -Cancel all credit cards -Pay delinquent accounts - Answer Pay delinquent accounts A client does not receive a written monthly statement from the credit card company. Which credit law could this omission violate? -Fair Credit Billing Act -Fair Credit Reporting Act -Fair Housing Act -Fair and Accurate Credit Transactions Act - Answer Fair Credit Billing Act A client shopping for a mortgage loan presents a housing counselor with an offer from a local mortgage lender. The interest rate on the offer is 7.5% for a 30-year fixed rate mortgage with a 20% down payment required. The counselor reviews the client file and determines the client's credit score is 725 and the client's total debt-to- income ratio is 20%. The client asks the housing counselor if the offer is a case of illegal predatory lending. How should the housing counselor respond? -"You have been a victim of predatory lending and should file a report with the Consumer Finance Protection Bureau (CFPB)." -"The loan seems reasonable. You might do better, but I cannot steer you to any particular loan originator." -"I am unable to determine whether the loan is predatory, but I suggest you shop around with other lending sources." -"I cannot offer legal advice, but I would not proceed with the loan." - Answer "I am unable to determine whether the loan is predatory, but I suggest you shop around with other lending sources." Which action should a counselor recommend a client take first after discovering identity theft? -File for a name change. -Apply for a new Social Security number. -File an identity theft report. -Purchase identity theft protection. - Answer File an identity theft report. 36%. The home has appraised for $155,000. Which factor of creditworthiness will most likely be an obstacle to purchasing the home? -Character -Capital -Collateral -Capacity - Answer Collateral When a lender inquires about how much money a borrower has saved for a down payment on a home, what factor is being considered? -Character -Collateral -Capital -Capacity - Answer Capital A first-time buyer wants a conventional loan but does not have the assets to qualify. This client may have to purchase with an FHA loan unless the client saves more money. Which of the Four C's of Credit does this involve? -Capacity -Character -Capital -Collateral - Answer Capital Which describes a home-buyer who would be ineligible as a first-time home-buyer, as defined by most down payment assistance programs? A client who sold a home five years ago for a net profit. A client who lost a home to foreclosure two years ago. A client who leases out units in a cousin's rental property. A client who lives in a home owned by the client's parents. - Answer Which step does a home-buyer complete in the process of purchasing a home? Get a home assessment Get a home inspection Select the appraiser Purchase life insurance - Answer Get a home inspection A counselor's understanding of the client's spending habits and use of credit are most important in which step of the home-buying process? Evaluating housing affordability for the client Obtaining financing Making an offer on a home Determining if home-ownership is right for the client - Answer Evaluating housing affordability for the client Which charge cannot change from the Loan Estimate to the Closing Disclosure? Initial deposit for the escrow amount Fees paid to lender Daily interest charge Government recording charge - Answer Which is the minimum qualifying credit score for an FHA mortgage if the client made a 3.5% down payment? 540 580 600 640 - Answer 580 A client has saved money for a small down payment and closing costs to purchase a $100,000 home in the city. The client is deciding whether to begin the home-buying process now or continue saving for a larger down payment. Client Profile ► Credit Score - 700 ► Monthly income - $3,000 ► Savings - $15,000 Types of Loans - LTV (%) ► Traditional conventional loan - 80% ► Conventional/piggyback - 80%/10% ► Conventional loan - 90% ► FHA loan - 96.5% Which loan type would provide the highest monthly payment, assuming interest rates and other factors are equal? Conventional/piggyback FHA loan Conventional loan Traditional conventional loan - Answer A client, who is the surviving spouse of a military service member, is interested in buying a home. The client now works at a local nonprofit agency, making $36,000 per year. The client has $4,000 in savings and a credit score of 624. If a client has just received a commitment from a lender to provide a loan for a fixed loan amount based on a review of the complete loan application package by an underwriter, in what stage of the lending process is the client? Loan committee review Pre-approval Pre-qualification Loan application - Answer What are key differences between PMI and MIP? Conventional loans may require MIP, removed at 78% LTV. FHA loans require PMI, removed upon fulfillment of loan terms. Conventional loans may require PMI, removed at 78% LTV. FHA loans require MIP, removed upon fulfillment of loan terms. Conventional loans may require MIP, removed at fulfillment of loan terms. FHA loans require PMI, removed at 78% LTV. Conventional loans may require PMI, removed upon fulfillment of loan terms. FHA loans require MIP, removed at 78% LTV. - Answer A client seeking to purchase is trying to decide between an FHA-insured mortgage and another mortgage insured by private mortgage insurance. Which is a distinguishing difference between these two types of mortgage insurance? -FHA-insured mortgages generally require payment of mortgage insurance premiums, which are generally twice as expensive as private mortgage insurance premiums for the same loan amount. -Private mortgage insurance programs generally require payment of mortgage insurance premiums for the life of the loan. FHA-insured mortgages may allow for the removal of this insurance after paying down the loan to below a 78% loan-to- value level. -Private mortgage insurance programs generally require payment of mortgage insurance premiums, which are generally twice as expensive as FHA mortgage insurance premiums for the same loan amount. -FHA-insured mortgages generally require payment of mortgage insurance premiums for the life of the loan. Many private mortgage insurance programs may allow for their removal after paying down the loan to below a 78% loan-to-value level. - Answer Which borrower information is contained in the Uniform Residential Loan Application (URLA)? Credit score Tax information Asset information Education - Answer In order to comply with the Know Before You Owe rule, which disclosures were replaced with new versions that more clearly outline mortgage terms to borrowers? -Loan Estimate and HUD-1 Settlement Statement -Good Faith Estimate (GFE) and Closing Disclosure -Loan Estimate and Closing Disclosure -Good Faith Estimate (GFE) and HUD-1 Settlement Statement - Answer Loan Estimate and Closing Disclosure Which government regulation prohibits a lender from discriminating against a borrower who uses public assistance to qualify for a mortgage loan? -Residents would be required to pay a share of expenses related to capital improvements to the common areas. - Answer A homeowner has decided to remodel the basement over the next 12 months. The project should cost just under $24,000, and the hope is to borrow the money at a very low interest rate that can be paid off over a longer period of time. Which home financing option would work best? -FHA 203k loan -Energy Eficient Mortgage (EEM) -HELOC -Home equity loan - Answer A potential home-buyer with minimal savings for a down payment and a low credit score is most likely to qualify for which mortgage? -Freddie Mac -USDA -Fannie Mae -FHA - Answer Which is the most significant benefit of using a real estate agent? Paying the sales commission Marketing the home online Obtaining a home inspection Negotiating the sale - Answer Negotiating the sale Which item is critical to consider when working with a client to prepare a household system maintenance plan? Local tax codes Cost of original item Target replacement date Finance rate - Answer Which strategy most effectively increases a home's energy efficiency? -Install an automatic garage door opener. -Increase attic insulation. -Use ground fault indicator outlets. -Cover windows with permanent storm shutters. - Answer Increase attic insulation. Which best describes the ENERGY STAR program? A voluntary program that helps businesses and individuals save money and protect the climate through superior energy efficiency. A voluntary program that helps individuals save money and protect the climate through superior energy efficiency. A mandatory program that helps individuals save money and protect the climate through superior energy efficiency. A mandatory program that helps businesses and individuals save money and protect the climate through superior energy efficiency. - Answer Which action would most likely increase the energy efficiency of a home? -Repair caulking on windows. -Repair cracks in driveways and walkways. -Clean chimneys. -Keep electrical cords in good condition and positioned appropriately. - Answer Repair caulking on windows. Which should a housing counselor recommend that a client include in a household maintenance plan? -Limits of homeowners insurance coverage -Ratings for energy efficiency resources -Strategies for financing a home improvement loan -Coverages for home warranty - Answer Which item should be included in an emergency preparedness plan? -Identify a meeting location outside the immediate area. -Store 30 days' worth of food. -Obtain identification bracelets for all family members. -Purchase a safety deposit box at a bank. - Answer A client with limited financial resources wants to improve safety in the home to prepare for natural disasters. Which is the best resource for the client to use in researching this topic? Ready.gov Energy.gov HUD.gov NOAA.gov - Answer Which would be the best location to identify in a household emergency preparedness plan as a safe place to meet in the event of an evacuation? A motel in a neighboring community A local hospital The nearest police station The family home - Answer What was the primary purpose of the Making Home Affordable program? -To assist homeowners in avoiding foreclosure -To force major financial institutions to lower monthly mortgage payments for homeowners -To refinance loans for homeowners with Fannie Mae or Freddie Mac loans -To provide principal forgiveness to homeowners in danger of foreclosure - Answer To assist homeowners in avoiding foreclosure The terms Ability to Repay and Qualified Mortgage were defined in regulations implemented by the Consumer Finance Protection Bureau (CFPB) because of what industry wide problem? -Loan modification scams -Blockbusting -Subprime lending -Jumbo lending - Answer Two homeowners are making adjustments to household spending. Their Client Action Plans outline several potential steps. Client 1 ► Work overtime ► Hold a yard sale ► Downgrade cable service ► Limit miscellaneous spending Client 2 ► Secure second job ► Sell assets (e.g., car, furniture) ► Suspend cable and home phone ► Eliminate miscellaneous spending Based on the action steps for each client, what might a housing counselor assume? -Client 1 and Client 2 are likely in similar circumstances. -Client 1 is more likely to be in either default or imminent default. -Neither Client 1 nor Client 2 is likely in financial hardship. -Client 2 is more likely to be in either default or imminent default. - Answer What should a counselor and tenant focus on when developing an emergency budget? -Calculating front-end and back-end ratios -Providing verifiable income to the servicer -Increasing income and decreasing expenses -Enrolling in a debt management plan - Answer A client is delinquent on the mortgage and at risk of default. The client is considering signing the deed over to a real estate investor to avoid foreclosure. What should the housing counselor recommend? -Recommend a reputable real estate agent to handle signing the deed over to a real estate investor. -Advise the client to take advantage of the offer to sign over the deed. Under what circumstance must a servicer refrain from beginning the foreclosure process? -The lender is merging with another company. -The counselor is developing a Client Action Plan. -The client has a pending loan modification application. -The client is currently unemployed. - Answer Which does a servicer do in the non-judicial foreclosure process? -Issues a Notice of Default (NOD) to the borrower -Issues a notice of the lawsuit to the borrower -Waits until the judge rules before taking action -Files a lawsuit in state court - Answer In which circumstance may a tenant terminate a lease without financial repercussions? -Tenant's job is relocating out of state -Tenant is laid off -Tenant suffers a serious medical injury -Tenant's spouse is relocated for a military assignment - Answer Tenant's spouse is relocated for a military assignment When a housing counselor is assisting a low-income client in danger of eviction, which referral would be most appropriate? -Supplemental Nutrition Assistance Program (SNAP) -Legal aid services -Lawyer referral service -Volunteer Income Tax Assistance (VITA) - Answer Which strategy used by an unemployed client will most likely result in the client moving out of a shelter into permanent affordable housing? -Participate in the shelter's transitional housing programs. -Remain at the shelter for the maximum allotted time. -Ask for a housing choice voucher from a housing counselor. -Participate in the shelter's vocational rehab program. - Answer A client recently experienced an unexpected car expense, which resulted in the client using half the rent to pay for the expense. The client, who still has a full-time job, would like to avoid making a late payment. Which resource should a housing counselor recommend first? -Contact United Way 211 -Apply for transitional housing -Contact local Legal Aid service -Apply for emergency shelter - Answer A counselor is working with a client who has recently been evicted. What would be the most appropriate housing referral? -Affordable housing resource -Local emergency shelter -Transitional shelter -Housing Choice Voucher program - Answer A tenant has a Housing Choice Voucher for a two-bedroom apartment, but lives in a three-bedroom apartment and pays the difference in rent. Due to a recent job change, the tenant is behind on rent but wishes to keep the voucher. What should the counselor encourage the client to do? -Wait for eviction in order to retain the voucher -Move into a two-bedroom unit to reduce costs and negotiate a repayment plan -Work with the local fair housing organization to prevent eviction -Wait for the Cure or Quit Notice to initiate negotiations with the landlord - Answer Which practice is a legal exception to the Fair Housing Act? -Limiting rental information to individuals based on gender when the owner lives in a facility with fifteen rental units -Failing to accept an offer because of the buyer's gender when the housing was promoted by a real estate agent -Refusing to rent housing to a member of a religious organization when the owner is a private entity that owns six single-family houses -Making housing operated by a religious organization unavailable to those who are not members of the organization - Answer Which practice remained legal after the passage of the Civil Rights Act of 1964? -Segregating public school programs, based on race -Using different provisions in leases for federally funded public housing, based on race -Assigning renters to specific floors in a privately owned apartment complex, based on race -Providing different housing to military personnel, based on race - Answer Which are protected characteristics under the federal Fair Housing Act? -Race, sexual orientation, disability -Gender identity, color, national origin -Source of income, race, sex -Race, religion, disability - Answer Which is a potential violation of the Fair Housing Act? -A landlord refuses to rent to a Muslim family based on negative credit history. -A homeowner renting a spare bedroom refuses to rent to a female tenant. -An apartment owner only rents ground-level apartments to tenants of Asian ethnicity. -A religious organization denies a prospective tenant of a different religion from renting one of its apartments. - Answer A single, gay, African-American parent with four kids is turned away from a property because the landlord does not want the kids to destroy the property. Which protected characteristic of discrimination most likely fits this case? -Color -Race -Familial status -Sexual orientation - Answer Which HUD program provides funding to nonprofits that assist people who may have been victims of housing discrimination? -Section 8 -Section 3 -Fair Housing Initiatives Program (FHIP) -Fair Housing Assistance Program (FHAP) - Answer When filing a fair housing complaint, why is it important to provide the date of the alleged violation? -Because complaints are only valid if they are filed within a given period of time -Because complaints made in the same time frame by other aggrieved parties are taken into account -Because complaints are only valid after a given waiting period -Because HUD is required to rule on a complaint within a given period of time - Answer While meeting with a housing counselor, a client describes a possible housing discrimination situation. Which is the best way to handle the violation? -File a complaint online with HUD -Write out a lengthy description of the situation -Go the state's civil rights division -Go to the local fair housing center - Answer Which is a campaign to inform the public about fair housing rights? -Fair Housing Assistance Program -Fair Housing Act -Fair Housing Initiatives Program -Affirmatively Furthering Fair Housing Program - Answer