HUD Housing Counselors Knowledge Assessment - English PDF

Ajanta Consulting 2 HUD Housing Counselors Knowledge Assessment - English Login Assessment Marked Summary...

Ajanta Consulting 2 HUD Housing Counselors Knowledge Assessment - English Login Assessment Marked Summary Review Below is a scored review of your assessment. All questions are shown. Scenario A2 A client has been a paralegal for five years and earns $56,400 per year. She has been working part-time at an ice cream parlor for the past few summers to save for her first home. Now that she has saved $12,000 toward a down payment, she no longer needs to work a second job. In the next three months, the client would like to buy a single-family home near a good school for less than $150,000. She wants to purchase something large enough for a family, in case she and her boyfriend decide to get married. Correct Answer Partially Correct Incorrect Answer 21 If the client submits a loan application, which document should she receive within three business days? Your Answer Loan Estimate Correct Answer Loan Estimate Explanation 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. Reference: Module 4.1 Pre-Purchase Page Number 29 to 31 22 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? Your Answer Report the action to a local fair housing center as it is a violation of the Fair Credit Reporting Act Correct Answer Report the action to the Federal Trade Commission as it is a violation of the Equal Credit Opportunity Act Explanation 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). Reference: Module 4.1 Pre-Purchase Page Number 28 to 28 Scenario B1.1 A widow with three children under the age of 18, works full time and also receives social security survivor benefits. She has eight months left on her rental lease and would like to purchase a home at the end of the lease. She has been employed in the same position for the last three and a half years and earns $5,000 dollars per month, plus a survivor benefit of $1,400. She has one open credit card with a credit limit of $5,000 with a $4,400 balance and a minimum monthly payment of $104. She has a monthly auto loan payment of $511 with a remaining balance of $5,650. Her credit score is 665. Because she takes her children to school, she usually stops on her way to work for breakfast. 23 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.) Budget Worksheet - Scenario B1 Assets Checking $1,200 Savings $50,000 Retirement Account $7,000 Totals $58,200 Income Type Budget Salary $5,000 Social Security $1,400 Totals $6,400 Expenses Type Budget Rent $2,050 Credit cards - Balance $4,400.00 $104 Renters insurance $54 Housing/Utilities- Gas & Electric $110 Food/Groceries $1,000 Telephone/Cell phone $60 Entertainment/Cable $130 Auto loan payments - Balance $5,650.00 $511 Auto/Transportation/Auto insurance $135 Auto/Transportation/Car maintenance $50 Auto/Transportation/Gas and oil $150 Insurance/Life insurance premiums $110 Health care/Medical Insurance $260 Health care/Medical bills $20 Personal care $50 Savings $500 Totals $5,294 Your Answer Reduce food expenses by cooking at home more and eating out less Correct Answer Reduce food expenses by cooking at home more and eating out less Explanation 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. Reference: Module 1.1 Budget Page Number 9 to 16 24 Based on the client information provided, for which tax credit might she qualify? Your Answer Child and Dependent Care Tax Credit Correct Answer Child and Dependent Care Tax Credit Explanation The child and dependent care tax credit is for those who are working or actively looking for work while paying a service to take care of a dependent (child or adult). The client likely would not qualify for the earned income credit because her family is not low income, and she would not qualify for the educational tax credit because she is not currently in post- secondary education. She would not qualify for energy credits because she is not currently a homeowner. Reference: Module 1.3 Managing Assets Page Number 22 to 22 25 Which factor would most likely impact the client's housing affordability in the future? (Refer to the budget below as needed.) Budget Worksheet - Scenario B1 Assets Checking $1,200 Savings $50,000 Retirement Account $7,000 Totals $58,200 Income Type Budget Salary $5,000 Social Security $1,400 Totals $6,400 Expenses Type Budget Rent $2,050 Credit cards - Balance $4,400.00 $104 Renters insurance $54 Housing/Utilities- Gas & Electric $110 Food/Groceries $1,000 Telephone/Cell phone $60 Entertainment/Cable $130 Auto loan payments - Balance $5,650.00 $511 Auto/Transportation/Auto insurance $135 Auto/Transportation/Car maintenance $50 Auto/Transportation/Gas and oil $150 Insurance/Life insurance premiums $110 Health care/Medical Insurance $260 Health care/Medical bills $20 Personal care $50 Savings $500 Totals $5,294 Your Answer The need for a second car when the children start to drive Correct Answer A reduction in income when the survivor benefit runs out Explanation A reduction in income will have the biggest impact on future housing affordability. Survivor benefits expire when children turn 18, so the client needs to consider the time period for which her family is eligible to receive the additional income. A mortgage term determines the monthly housing payment, but the payment remains the same throughout, so there is no significant future change to anticipate. Additional expenses for repairs or another vehicle will impact the household budget and housing affordability, but a future reduction in income is the biggest factor affecting the debt-to-income ratio for this client to consider as it creates a $1,400 deficit in the household budget that must be made up. Reference: Module 2.1 Renting vs. Buying Page Number 10 to 24 26 Which is the maximum payment (rounded to the nearest dollar) for principal, interest, taxes, insurance, and association fees (PITIA) this client can afford according to FHA back-end ratio guidelines? (Refer to the budget below as needed.) Budget Worksheet - Scenario B1 Assets Checking $1,200 Savings $50,000 Retirement Account $7,000 Totals $58,200 Income Type Budget Salary $5,000 Social Security $1,400 Totals $6,400 Expenses Type Budget Rent $2,050 Credit cards - Balance $4,400.00 $104 Renters insurance $54 Housing/Utilities- Gas & Electric $110 Food/Groceries $1,000 Telephone/Cell phone $60 Entertainment/Cable $130 Auto loan payments - Balance $5,650.00 $511 Auto/Transportation/Auto insurance $135 Auto/Transportation/Car maintenance $50 Auto/Transportation/Gas and oil $150 Insurance/Life insurance premiums $110 Health care/Medical Insurance $260 Health care/Medical bills $20 Personal care $50 Savings $500 Totals $5,294 Your Answer [no answer given] Correct Answer $2,137 Explanation The back-end ratio includes total principal, interest, taxes, and insurance, plus other monthly debt. The maximum back- end ratio for FHA is 43%. Client’s total monthly income: $6,400 Client’s monthly debt: $615 Total allowed for PITIA and debt: $6,400 x.43 = $2,752 Maximum allowed PITIA: $2,752 - $615 = $2,137 The client's total monthly income is $6,400, and her total monthly debt is $615. Forty-three percent of $6,400 is $2,752. Subtracting the total monthly debt from $2,752, the remainder is $2,137, which is the maximum total principal, interest, taxes, insurance, and association fees (PITIA) payment. Reference: Module 2.1 Renting vs. Buying Page Number 21 to 24 27 Which is the minimum recommended emergency savings amount for this client based on the budget shown? (Refer to the budget below as needed.) Budget Worksheet - Scenario B1 Assets Checking $1,200 Savings $50,000 Retirement Account $7,000 Totals $58,200 Income Type Budget Salary $5,000 Social Security $1,400 Totals $6,400 Expenses Type Budget Rent $2,050 Credit cards - Balance $4,400.00 $104 Renters insurance $54 Housing/Utilities- Gas & Electric $110 Food/Groceries $1,000 Telephone/Cell phone $60 Entertainment/Cable $130 Auto loan payments - Balance $5,650.00 $511 Auto/Transportation/Auto insurance $135 Auto/Transportation/Car maintenance $50 Auto/Transportation/Gas and oil $150 Insurance/Life insurance premiums $110 Health care/Medical Insurance $260 Health care/Medical bills $20 Personal care $50 Savings $500 Totals $5,294 Your Answer $15,882 Correct Answer $15,882 Explanation It is a good practice to save three to six months-worth of living expenses. The client’s monthly living expenses are $5,294, and her monthly income is $6,400. To determine the minimum amount needed, multiply the living expenses by three. ($5,294 multiplied by 3 equals $15,882.) While higher amounts in savings allow for greater security, other calculations are all greater than the minimum recommendation. Expense of $5,294 multiplied by 6 equals $31,764. Income of $6,400 multiplied by 3 equals $19,200. Reference: Module 1.3 Managing Assets Page Number 12 to 13 28 Which additional information would the housing counselor need to prepare the action plan for this client? Your Answer Documentation of household expenses Correct Answer Documentation of household expenses Explanation 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. Reference: Module 1.1 Budget Page Number 14 to 18 29 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? Your Answer Submit application for a housing voucher Correct Answer Find an individual landlord and negotiate Explanation The most effective option for the client to reduce moving costs is to find an individual landlord and negotiate. Apartment complexes also might negotiate but may not be as flexible. Applying for a short-term loan would be an expensive option. Nonpayment of utility bills could result in issues later. Submitting an application for a housing voucher might eventually allow the family to secure a more affordable unit, but the process could be quite lengthy. Reference: Module 6.1 Obtaining and Maintaining Tenancy Page Number 8 to 11 30 Which type of lease and tenancy would best protect the tenant if she moved into a new apartment? Your Answer A written lease with contractual tenancy Correct Answer A written lease with contractual tenancy Explanation It is recommended that tenants request a written lease with contractual tenancy so they are fully protected to stay in the home. A written lease outlining tenancy at will would not fully protect the tenant, because the landlord does not define a formal rent payment or rental period. Oral leases are easy and convenient but not very secure. Reference: Module 6.1 Obtaining and Maintaining Tenancy Page Number 15 to 15 31 Which tactic would be most effective for the client to encourage a positive landlord-tenant experience if she wanted to terminate her lease early in order to move? Your Answer Communicate well with the landlord Correct Answer Communicate well with the landlord Explanation A landlord may release a tenant from a lease without any financial obligations if the landlord is given enough advance warning to find a new tenant. Good communication can minimize the negative effects of terminating a lease early. Stopping rent payments immediately might violate the lease agreement. If the landlord must later pay for the removal of furniture or other items, leaving items in the unit might reduce the amount of the rental deposit returned to the client. Return of the security deposit depends on the lease terms and state law. Reference: Module 6.1 Obtaining and Maintaining Tenancy Page Number 17 to 20 Scenario B1.2 The client decides to stay in her current apartment until she can purchase a single-family home. Prices in the area where she would like to live are around $450,000. She has $45,000 left from the life insurance settlement and she has saved an additional $5,000. She typically saves $500 per month, but when she has unexpected expenses she is unable to save. 32 The client currently keeps the $45,000 remaining from the life insurance settlement in a regular checking account. Her goal is to use this money towards her down payment. Which action should the housing counselor suggest to this client? Your Answer Move funds to a large purchase savings account with limited accessibility Correct Answer Move funds to a large purchase savings account with limited accessibility Explanation When saving for a large purchase, it is best to keep designated money in a limited access account with good returns. A limited access account usually provides good returns which will help the client reach her savings goal more quickly. If the client leaves the money in her current checking account, she runs the risk of spending the money and will earn little or no interest. A Certificate of Deposit or mutual fund would normally tie up the money and may incur fees upon withdrawal. Reference: Module 1.3 Managing Assets Page Number 11 to 15 33 The client's lease may expire before she can move into a new home. Which is the best advice for the housing counselor to provide? Your Answer Discuss a tenancy-at-sufferance agreement with the current landlord Correct Answer Discuss a tenancy-at-sufferance agreement with the current landlord Explanation The best case is for the client to be allowed to stay where she is until she can move into her new home, as this is less costly and more convenient. The Public Housing Agency is unlikely to be able to assist with temporary housing, and waiting for eviction can have significant negative impacts. Finding an owner who will allow her to occupy a home prior to closing is unlikely. Reference: Module 6.1 Obtaining and Maintaining Tenancy Page Number 15 to 15 34 Which is the best recommendation the housing counselor should give this client to help improve her credit score? Your Answer Set up automatic credit card and loan payments to ensure on time payment Correct Answer Pay more than the minimum payment each month to reduce the credit card balance Explanation By paying more than the minimum balance over the next several months, the client will reduce the debt utilization ratio, which has significant impact on the overall score. A new credit card or a consolidation loan may provide a lower interest rate; however, new credit applications create hard inquiries which negatively impact credit scores, and increased monthly payments reduce balances more quickly than a slight reduction in interest rate. There is no information to suggest the client has difficulty making on-time payments, so setting up automatic payments will not impact the credit score. Reference: Module 1.2 Credit Page Number 9 to 16 35 The client currently pays $2,050 in rent, though her mortgage payment could be higher. Which is the most effective strategy to be able to manage a higher payment? Your Answer Delay home purchase until the car loan is paid off Correct Answer Delay home purchase until the car loan is paid off Explanation Delaying home purchase until the car loan is paid off also allows the client time to save additional funds for a down payment and closing costs. Applying the current monthly savings to the mortgage payment in the future is a risky strategy, as the client should continue saving. Terms for unsecured loans, like a consolidated personal loan, can be risky, so the client would need to carefully evaluate this option. Pulling funding from a retirement account might incur fees that the client can avoid with other options. Reference: Module 2.1 Renting vs. Buying Page Number 22 to 25 36 Which is the down payment required if the client purchases a $375,000 home with an FHA mortgage? Your Answer $18,750 Correct Answer $13,125 Explanation The down payment would be 3.5% of the $375,000 purchase price, which is $13,125 ($375,000 multiplied by 0.035 equals $13,125). $75,000 is 20% of the purchase price, which could be an approximate amount required for closing. $18,750 is 5% of the loan amount. $45,000 is the amount she has available. Reference: Module 2.2 Affordable Housing Options Page Number 14 to 14 Scenario B1.3 Six months before seeking counseling, the client attempted to purchase a home but was denied. The mortgage required a minimum credit score of 650, 10% down payment a 36% front-end ratio and a 42% back-end ratio. The purchase price was $445,000 with a down payment of $45,000, monthly principal and interest payment of $2,086, property taxes of $386 and property insurance of $78 for a total monthly payment of $2,550. She was told she did not financially qualify for the loan. 37 Which of the four C's of Credit is the basis for the client's denial? Your Answer Capital Correct Answer Capacity Explanation Based on what we know about the client and the following scenario: “The client attempted to purchase a home six months ago but was denied. The mortgage required a minimum credit score of 650, a 10% down payment, a 36% front-end ratio, and a 42% back-end ratio. The purchase price was $445,000 with a down payment of $45,000, monthly principal and interest payment of $2,086, property taxes of $386, and property insurance of $78, for a total monthly payment of $2,550. She was told she did not financially qualify for the loan.” With $50,000 in savings, the client has sufficient capital to cover down payment and closing costs, so the denial was not based on insufficient capital. The client’s credit score of 665 is above the minimum of 650, so the denial was not based on character. Since the client was not pre-approved for the purchase price, an appraisal was not ordered at this point, so the denial was not based on collateral. The client’s front-end ratio is 38.9% and back-end ratio is 49.5%, so the denial was based on insufficient capacity to make the mortgage payment while maintaining monthly debt obligations. Reference: Module 2.1 Renting vs. Buying Page Number 26 to 27 Scenario B1.4 38 Which government rule or regulation may have been violated when the loan officer denied the loan for the condo? Your Answer Fair Housing Act Correct Answer Fair Housing Act Explanation The Fair Housing Act prohibits housing discrimination and protects seven characteristics: race, religion, color, national origin, familial status, disability, and sex. In this situation, the loan officer appears to have denied the loan based on the client’s familial status. Executive Order 11063 prohibited discrimination in the sale, leasing, rental, or other disposition of properties and facilities owned or operated by the Federal Government or provided federal funds. The Housing and Urban Development Act was created with the goal of providing government-insured loans to moderate- income people. The Dodd-Frank Act protects borrowers from predatory lending practices. Reference: Module 3.1 History & Overview Page Number 8 to 11 39 The loan officer's reason for denial of the condo loan appears to have violated the client's rights based on which of the client's characteristics? Your Answer Familial status Correct Answer Familial status Explanation The reason for denial appears to violate the Fair Housing Act, as the client is well qualified for the condo based on the stated debt-to-income ratio, credit, and down payment guidelines. Familial status is the best answer because of the loan officer’s comments about the client’s responsibilities as a mother. Coupled with citing stability of income as the reason for denial, it appears the loan officer denied the client because her familial status may impede her ability to repay the loan. Sex is a reasonable answer, as being female relates to the client’s status as a mother, but the stated concern was related to the client having children. Source of income is not a protected characteristic, and religion is not applicable to this case. Reference: Module 3.1 History & Overview Page Number 13 to 15