Housing Counselor Certification (HUD) Practice Exam

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Study for the HUD Housing Counselor Certification Exam with flashcards and multiple choice questions. Each question provides hints and explanations to help you prepare. Get ready for your certification!

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What does a back-end ratio primarily evaluate?

  1. Housing expenses only

  2. Total debt obligations

  3. Credit utilization

  4. Income stability

The correct answer is: Total debt obligations

The back-end ratio primarily evaluates total debt obligations, which includes not only housing expenses but also all other forms of debt that a borrower might have, such as credit card payments, car loans, student loans, and any other long-term financial commitments. This ratio is crucial for lenders when assessing a borrower's overall financial situation and their ability to manage and repay debts. By measuring the percentage of a borrower's gross income that goes towards servicing these debts, financial institutions can make more informed lending decisions, ensuring that the borrower does not become financially overextended. This comprehensive view of a borrower's debt profile helps to calculate the likelihood of meeting monthly obligations based on their total income, lessening the risk for lenders and aiding in responsible lending practices.