AFC Housing and Real Estate Finance 2

Question 1

Which type of mortgage is insured by the Federal Housing Administration (FHA) and is known for accepting lower down payments?

Accepted Answer

FHA Loan

Answer

FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5% for borrowers with qualifying credit scores.

Question 2

The back-end debt-to-income (DTI) ratio includes:

Accepted Answer

All monthly debt obligations (housing, car, student loans, etc.) divided by gross monthly income

Answer

The back-end DTI includes all recurring monthly debt payments (housing, auto, student loans, credit cards, etc.) divided by gross monthly income.

Question 3

What is the purpose of a home appraisal in the mortgage process?

Accepted Answer

To establish an independent estimate of the property's market value for the lender

Answer

An appraisal provides the lender with an independent professional opinion of the property's market value to ensure the loan amount is appropriate.

Question 4

Which of the following best describes the 'rent vs. buy' analysis an AFC financial counselor would perform for a client?

Accepted Answer

Comparing total costs of renting (including opportunity cost) versus owning (including transaction costs, taxes, maintenance) over a defined time horizon

Answer

A thorough rent vs. buy analysis accounts for all ownership costs—mortgage, taxes, insurance, maintenance, transaction costs—compared to renting, factoring in the client's time horizon and opportunity cost of the down payment.

Question 5

A client is 'underwater' on their mortgage. This means:

Accepted Answer

The outstanding mortgage balance exceeds the current market value of the home

Answer

Being underwater (or 'upside down') means a homeowner owes more on the mortgage than the home is currently worth, resulting in negative equity.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Housing and Real Estate Finance 2