Housing Counselor Certification (HUD) Practice Exam

A client is in the process of purchasing a home with a sales price of $162,000. Which factor of creditworthiness will most likely be an obstacle to purchasing the home?

1. Credit score

2. Debt-to-income ratio

3. Collateral

4. Employment history

The correct answer is: Collateral

In the context of evaluating creditworthiness for a mortgage, collateral refers to the assets that secure the loan, specifically the property being purchased. However, in this scenario, the sales price of the home is provided, and the question asks which factor is most likely to be an obstacle. While collateral is important, it is primarily concerned with the value and condition of the specific property, which already has a defined sales price of $162,000. The obstacle often arises from the borrower’s ability to make timely loan repayments, which is more directly influenced by factors such as credit score, debt-to-income ratio, and employment history. Among these, the debt-to-income ratio tends to be the most critical in determining whether a borrower can afford the monthly payments relative to their income and existing debt obligations. Credit score reflects a borrower's credit history and can also significantly affect loan approval. Employment history provides insight into job stability and income reliability. However, neither credit score nor employment history are as immediate as the debt-to-income ratio when assessing the strain of monthly mortgage payments on a borrower’s financial situation. Therefore, while collateral is fundamentally important, it is often the debt-to-income ratio that presents a more immediate challenge to a borrower's creditworthiness during the home-buying