What are Debt-to-Income Ratios?
How do They Impact Qualifying for a Mortgage?
When it comes to applying for a mortgage, understanding your financial standing is crucial. Lenders assess various factors to determine your eligibility, and one significant aspect they consider is your debt-to-income ratio (DTI). In this blog post, we will explore what DTI ratios are, why they matter, and how they can affect your chances of qualifying for a mortgage.
(NOTE: In this blog post you may see the acronym PITIA referenced. This stands for: Principal, Interest, Taxes, Insurance & Association Dues. It represents your total monthly housing payment.)
What is a Debt-to-Income Ratio?
A debt-to-income ratio (aka DTI) is a financial measurement that compares your monthly debt obligations to your gross monthly income. It provides lenders with insights into your ability to manage additional debt and make timely mortgage payments. This ratio is calculated by dividing your total monthly debt payments by your gross monthly income and multiplying the result by 100.
Mortgage Brokers, like Contemporary Mortgage Services, Inc., use this DTI calculation to determine how much of a monthly PITIA payment a borrower can qualify for and comfortable afford.
Importance of Debt-to-Income Ratios for Mortgage Qualification:
Lenders consider your debt-to-income ratio as a key indicator of your financial stability. It helps them assess the level of risk associated with lending you money for a mortgage. A lower DTI ratio generally indicates a lower risk for lenders, as it suggests that you have a higher capacity to meet your financial obligations. Conversely, a higher DTI ratio indicates a higher level of debt relative to your income, which may raise concerns for lenders.
Acceptable Debt-to-Income Ratios:
The acceptable DTI ratios can vary depending on the type of mortgage and the lender's guidelines. However, in general, most lenders prefer a DTI ratio of 43% or lower. Certain loan programs, such as FHA and VA, typically allow a much higher DTI than Conventional loan programs. However, Conventional loan programs, will also accept a higher DTI, when there are compensating factors (i.e. additional assets left over, good credit history and score, high down payment, etc...)
There are two main types of DTI ratios that lenders consider:
1. Front-End DTI Ratio:
- This ratio measures your housing-related expenses (e.g., mortgage payments, property taxes, insurance) against your gross income.
- Ideally, your front-end DTI ratio should be 28% or lower.
Calculation: Total Monthly Housing Payment (PITIA) / Total Monthly Gross Income = Front-End Ratio
2. Back-End DTI Ratio:
- This ratio includes all your monthly debt obligations, including housing expenses.
- For most lenders, the maximum back-end DTI ratio they accept is around 36%.
Calculation: Total Monthly Housing Payment (PITIA) + Monthly Debt Payments / Total Monthly Gross Income = Back-End Ratio
(Click HERE to see more examples on how these ratios are calculated)
Effectively Managing Your Debt-to-Income Ratio:
If your DTI ratio is higher than desired, there are steps you can take to improve it and increase your chances of qualifying for a mortgage:
Conclusion:
Understanding your debt-to-income ratio and its impact on qualifying for a mortgage is essential when pursuing homeownership. Lenders carefully analyze this ratio to evaluate your financial stability and assess the level of risk associated with lending to you. By maintaining a healthy DTI ratio and effectively managing your debts, you can enhance your chances of securing a mortgage and realizing your dream of owning a home.
Contact Us Today to Learn More:
Navigating the mortgage qualification process can be complex, but you don't have to do it alone. As a trusted mortgage broker, we have the expertise and resources to help you understand and improve your debt-to-income ratio. Contact us today to learn more about how we can assist you in finding the right mortgage options tailored to your unique financial situation. Let us guide you towards achieving your homeownership goals.
To learn more about Debt-to-Income ratios and to see example calculations, check out our full webpage on the topic: https://www.contemporarymortgage.com/dti
407-834-3377
info@contemporarymortgage.com
How Medical Debt Affects Your Credit Score in 2023
Recent Updates
Managing medical debt can be a challenging and stressful experience for individuals and families. Not only does it impact your financial well-being, but it can also affect your credit score, making it harder to secure loans or obtain favorable interest rates. However, recent developments in credit reporting practices have brought some positive changes. In this blog post, we will explore how medical debt affects your credit score in 2023 and discuss the significant updates that have occurred to alleviate the burden for many consumers.
1. The Impact of Medical Debt on Credit Scores:
In the past, medical debt had a substantial impact on credit scores, often resulting in lowered scores and reduced access to credit. Delinquent accounts and collections could remain on credit reports for years, hindering individuals' financial prospects. These negative effects were particularly unfair, considering that medical debt is often unexpected and unavoidable.
2. Removal of Paid Medical Collection Debt from Credit Reports:
One significant development that took effect on July 1, 2022, was the removal of paid medical collection debt from U.S. consumer credit reports. Previously, even after paying off medical debts, the collection accounts would remain visible on credit reports, impacting credit scores. This change provides relief for individuals who have successfully settled their medical debts, as it allows them to rebuild their credit profiles without the burden of past collections.
3. Exclusion of Recent Medical Collections from Credit Scoring:
Another crucial modification implemented in 2022 was the exclusion of medical collections less than 12 months old from credit scores. This alteration acknowledges that recent medical debts may not accurately reflect an individual's creditworthiness. By excluding these collections from credit scoring models, individuals can have a fairer chance to demonstrate their financial responsibility, especially when facing temporary medical challenges.
4. Removal of Small Medical Collections:
As of April 11, 2023, the three major credit reporting agencies, Equifax, Experian, and TransUnion, have taken a further step to alleviate the impact of medical debt on credit scores. They have collectively decided to remove all medical collections under $500 from credit reports. This change is estimated to benefit approximately half of those with medical debt on their reports, providing them with an opportunity to rebuild their creditworthiness.
In recent years, significant changes have been made to address the adverse effects of medical debt on credit scores. The removal of paid medical collection debt from credit reports, exclusion of recent medical collections from credit scoring, and the removal of small medical collections under $500 are all positive steps toward a fairer credit reporting system. These changes aim to provide relief to individuals burdened by medical debt and empower them to rebuild their financial standing.
It is essential to stay informed about evolving credit reporting practices and take proactive steps to manage medical debt responsibly. While these changes offer promising improvements, it is still crucial to communicate and negotiate with healthcare providers and billing departments to avoid medical debt in the first place. By staying vigilant and informed, individuals can better navigate the complex landscape of medical debt and protect their credit scores for a brighter financial future.
Contact us today to learn more about the recent updates and how they impact your ability to qualify for a mortgage.
How to Prepare Yourself and Your Home for Hurricane Season
Hurricane season is a reality for those who live in Florida. From June to November, residents and visitors alike must be aware of the potential for hurricanes and the damage they can cause. While it is impossible to predict when and where a hurricane will strike, there are steps you can take to prepare for the worst-case scenario. In this blog post, we will discuss how to prepare for hurricane season in Florida.
At the end of this blog post, we included a link to download our printable full hurricane preparation checklist!
1. Create a Hurricane Kit
One of the most important things you can do to prepare for hurricane season is to create a hurricane kit. This kit should include essentials like non-perishable food, water, medications, first aid supplies, and a battery-powered radio. You should also include important documents like insurance policies, identification, and birth certificates. Having a kit ready before the storm hits can make all the difference in the world.
2. Plan for Evacuation
If you live in an area that is prone to flooding or is in the direct path of a hurricane, it may be necessary to evacuate. It is important to have a plan in place for evacuation before the storm hits. This includes knowing the evacuation routes in your area, identifying a safe place to go, and having transportation available if needed.
3. Secure Your Home
Securing your home before a hurricane can help to minimize damage. This includes trimming trees and shrubs, securing loose outdoor items like patio furniture, and boarding up windows. You should also make sure that your roof is in good condition and that your gutters are clear of debris.
4. Stay Informed
It is important to stay informed during a hurricane. This means monitoring weather reports and updates from local officials. You should also have a way to receive emergency alerts, such as a NOAA weather radio or a smartphone app.
5. Have a Communication Plan
During a hurricane, it may be difficult to communicate with loved ones. That's why it's important to have a communication plan in place. This can include having a designated family member or friend to check in with, establishing a meeting place, and having a backup method of communication like a two-way radio.
6. Be Prepared for Power Outages
Power outages are common during hurricanes, so it's important to be prepared. This includes having flashlights, batteries, and a backup generator if possible. You should also turn off and unplug electronics to avoid damage from power surges when power is restored.
In conclusion, being prepared for hurricane season in Florida is essential. By creating a hurricane kit, planning for evacuation, securing your home, staying informed, having a communication plan, and being prepared for power outages, you can increase your chances of staying safe during a hurricane. Remember, it's always better to be over-prepared than under-prepared when it comes to hurricanes.
CLICK HERE TO DOWNLOAD OUR FULL PRINTABLE HURRICANE PREPARATION CHECKLIST:
HURRICANE PREPARATION CHECKLIST
At Contemporary Mortgage, we understand the importance of being prepared for unexpected events like hurricanes. That's why we offer a wide range of mortgage options to help you and your family purchase or refinance your home. Our team of experienced professionals is dedicated to helping you with all your home financing needs, including preparing for hurricane season. Contact us today to learn more about how we can assist you in securing your dream home and preparing for the unexpected.
Let us get you in a home with time to settle in before school starts this fall.
We close loans in as little as 14 days so you won't be stuck scrambling to find the bus stop in the morning!
We all know summer is the peak home buying season, and there’s a good reason for it! Summer often presents more opportunities for buyers to get out and about and look at homes, and the weather can be ideal for home shopping and moving, (of course except for the heat sometimes).
Many times, families opt to purchase a home in the summer so that they can get their children settled into a new school district, or specifically the district they desire, by the start of the new school year.
It's also typically better moving weather in most parts of the United States, but of course, the temps can be a little high depending on where you live (here in Central Florida, the heat and humidity will be something to consider!)
People who are looking to move to a place that will shorten their commute time to work will often look at buying a home during the summer. Why? Similar to starting a new school year, lots of people like to take the time to buy a home and move during the summer, when things might be a little bit slower at work (depending of course on what type of job you have!)
Some experts say that most sellers want to avoid moving during the holidays. That makes summer an ideal time for people to sell their homes.
Some experts have said that historically, there are fewer buyers during the fall season. A lot of times, parents who are homebuyers want to already be settled into that new home by fall -- not moving during the fall.
And hey, if you decide to buy your new home during the summer, there's a great chance you can have a pool party to celebrate your move in day...just sayin'!
ContemporaryMortgage.com | 407-834-3377
Beware of Wire Fraud During the Home Buying Process
As the home buying process becomes more digitized, the prevalence of wire fraud in real estate transactions is increasing at an alarming rate. Scammers are finding new ways to target and deceive unsuspecting home buyers, and it's essential to be aware of the risks to avoid being a victim.
Wire fraud occurs when cybercriminals use email phishing scams to trick home buyers into wiring money to a fraudulent account. They disguise themselves as legitimate entities, such as title companies, real estate agents, or attorneys, and send emails with fake wire instructions. These emails may appear genuine, with logos and other information that make them look authentic. The fraudsters then request that the funds be sent quickly, often citing the need to avoid delays in closing.
Unfortunately, once the funds are wired to the fake account, they are almost impossible to recover. Home buyers can lose their entire down payment or more, and the dream of owning a home can quickly turn into a financial nightmare.
To protect yourself from wire fraud, there are several things you can do:
1. Be skeptical of emails that ask for a wire transfer. Double-check the sender's email address to ensure it's legitimate, and don't hesitate to call the title company, real estate agent, or attorney to confirm any wire transfer instructions.
2. Don't click on any links or download attachments from unsolicited emails. Malicious links and attachments can infect your computer with malware or other viruses that can compromise your personal and financial information.
3. Use a secure Wi-Fi network when accessing sensitive information. Public Wi-Fi networks are not secure and can be easily hacked, allowing cybercriminals to intercept your data.
4. Monitor your accounts regularly. Keep an eye out for any unauthorized activity or unusual transactions, and report them immediately to your financial institution.
5. Educate yourself and your family about wire fraud. The more informed you are about the risks, the more likely you are to avoid falling victim to these scams.
In conclusion, wire fraud is a serious threat to home buyers, and it's crucial to take steps to protect yourself from this growing problem. Be vigilant, stay informed, and don't hesitate to ask questions or seek guidance from trusted professionals. With a little effort and attention, you can ensure a smooth and secure home buying experience.
We strongly encourage all our customers to watch the informative video from the American Land Title Association, which provides practical guidance on identifying and preventing wire fraud.
What is Private Mortgage Insurance aka PMI?
Private mortgage insurance, commonly known as PMI, is a type of insurance that protects lenders in case a borrower defaults on their mortgage payments. It's typically required by lenders when a borrower makes a down payment of less than 20% of the home's purchase price. PMI provides an additional layer of security for the lender, as it covers a portion of the loan amount if the borrower fails to make their mortgage payments.
Why is PMI Required?
Lenders require PMI for borrowers with less than a 20% down payment because a lower down payment represents a higher risk to the lender. With less equity in the home, borrowers may be more likely to default on their mortgage payments. PMI helps mitigate that risk for lenders by providing financial protection.
How Much Does PMI Cost?
The cost of PMI varies based on several factors, including the borrower's credit score, the loan-to-value ratio, and the size of the down payment. Typically, PMI rates are calculated as a percentage of the loan amount and can range from 0.3% to 1.5% of the original loan amount per year.
How to Remove PMI
PMI is not permanent. Once the borrower's equity in the home reaches 20%, PMI can be cancelled. Some lenders may require the borrower to submit a request to remove PMI, while others will automatically cancel it. It's important to check with your lender to understand their specific requirements for PMI removal.
Benefits of PMI
PMI can be a valuable option for homebuyers who don't have a large down payment saved up but still want to purchase a home. Some benefits of PMI include:
1. Lower Down Payment: PMI allows borrowers to obtain a mortgage with a lower down payment, which can make homeownership more accessible, especially for first-time homebuyers.
2. Faster Homeownership: With PMI, borrowers may be able to buy a home sooner, as they don't need to wait until they have a 20% down payment saved up.
3. Flexibility: PMI offers flexibility in terms of payment options. It can be paid as a separate premium, or it can be rolled into the monthly mortgage payment, making it easier for borrowers to budget for their housing costs.
Considerations for PMI
While PMI can be beneficial for some homebuyers, it's important to consider a few things:
1. Cost of PMI: PMI rates can add to the overall cost of the mortgage. It's important to understand the cost of PMI and how it will impact your monthly budget.
2. Requirements for PMI Removal: While PMI can be cancelled once the borrower's equity in the home reaches 20%, there may be other requirements set by the lender, such as having a good payment history and meeting certain criteria. It's important to understand these requirements and plan accordingly.
3. Alternatives to PMI: There may be other options to avoid PMI, such as obtaining a loan with a higher interest rate (known as lender-paid PMI) or getting a second mortgage to cover part of the down payment. It's important to explore all options and work with a knowledgeable mortgage professional to determine the best strategy for your specific situation.
Conclusion
In conclusion, PMI can be a useful tool for homebuyers who don't have a large down payment saved up but still want to purchase a home. It's important to understand the cost of PMI, the requirements for PMI removal, and the alternatives available. Working with a knowledgeable mortgage professional can help you navigate the world of PMI and find the best mortgage solution for your needs and budget.
At Contemporary Mortgage Services, Inc., we understand that navigating the world of PMI can be overwhelming for homebuyers. Our experienced mortgage brokers are here to help. We can explain the ins and outs of PMI, answer your questions, and help you find the best mortgage solution for your needs and budget. Contact us today to learn more.
Contemporary Mortgage Services, Inc.
Are you a veteran looking for a home?
There are many benefits you can take advantage of as you navigate the home buying process, and the team at Contemporary Mortgage can help you to find the loan that best suits you for your new home.
Often times, you will be able to put zero percent down if you’re using a VA loan. Low interest rates can cover processing and underwriting fees if you’re using a VA or FHA loan.
Contemporary Mortgage can help you pay for closing costs with a lower interest rate than you would see with other programs. Now, here is some background on VA loans.
VA Loans
VA guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans for the purchase of a home. The guaranty means the lender is protected against loss if you fail to repay the loan. In most cases, no down payment is required on a VA guaranteed loan and the borrower usually receives a lower interest rate than is ordinarily available with other loans.
Other benefits of a VA loan include:
Although mortgage insurance is not required, the VA charges a funding fee to issue a guarantee to a lender against borrower default on a mortgage. The fee may be paid in cash by the buyer or seller, or it may be financed in the loan amount.
A VA loan can be used to buy a home, build a home and even improve a home with energy-saving features such as solar or heating/cooling systems, water heaters, insulation, weather-stripping/ caulking, storm windows/doors or other energy efficient improvements approved by the lender and VA.
Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program. A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.
Some other factors that you might consider:
Contact Contemporary Mortgage Services, Inc. today, to speak with a team member about how you can get started with your home buying process.
www.ContemporaryMortgage.com
(407) 834-3377
Why Choose a Mortgage Broker Over a Bank?
If you're in the market for a mortgage, you may be wondering whether you should go to a bank or a mortgage broker. While banks are a common option, many homebuyers are turning to mortgage brokers to help them find the best mortgage deals. Here are some of the reasons why you should choose a mortgage broker over a bank:
1. Access to a Wide Range of Lenders
One of the main benefits of working with a mortgage broker is that they have access to a wide range of lenders. While banks typically offer their own mortgage products, mortgage brokers work with multiple lenders, including wholesale lenders, banks, credit unions, and other financial institutions. This means that they can offer you a variety of mortgage options to choose from, and they can help you find the best mortgage deal and rate available for your specific needs. In contrast, when you go to a bank, you are limited to the mortgage products and rates offered by that specific bank.
2. Personalized Service
When you work with a mortgage broker, you'll receive personalized service that's tailored to your specific needs. A mortgage broker will take the time to understand your financial situation, your home buying goals, and your personal preferences. They'll then use this information to help you find a mortgage that fits your needs and your budget. This level of personalized service can be invaluable, especially if you're a first-time homebuyer or if you're not familiar with the mortgage process. In contrast, when you go to a bank, you may not receive the same level of personalized service.
3. Expert Advice
Mortgage brokers are experts in their field, and they can provide you with valuable advice throughout the mortgage process. They can help you understand the different types of mortgages, the pros and cons of each, and the costs associated with each type of mortgage. They can also help you navigate the complex mortgage application process, and they can help you avoid common pitfalls and mistakes. In contrast, when you go to a bank, you may not receive the same level of expert advice.
4. Save Time and Money
Working with a mortgage broker can also save you time and money. Since mortgage brokers have access to multiple lenders, they can help you find the best mortgage deals on the market. This can save you money in the long run by helping you find a mortgage with a lower interest rate, lower fees, and better terms. Additionally, mortgage brokers can help you save time by doing the legwork for you. They can handle the paperwork, negotiate with lenders on your behalf, and help you close your mortgage quickly and efficiently. In contrast, when you go to a bank, you may have to do more of the work yourself.
5. Ongoing Support
Finally, mortgage brokers provide ongoing support throughout the life of your mortgage. They can help you refinance your mortgage when interest rates drop, and they can help you renegotiate your mortgage if your financial situation changes. They can also answer any questions you have about your mortgage, and they can provide you with valuable advice on how to pay off your mortgage faster. In contrast, when you go to a bank, you may not receive the same level of ongoing support.
In conclusion, choosing a mortgage broker over a bank can be a smart choice if you're in the market for a mortgage. With access to a wide range of lenders, personalized service, expert advice, time and money savings, and ongoing support, a mortgage broker can help you find the best mortgage deal for your needs and help you navigate the complex mortgage process with ease.
Most importantly, mortgage brokers work for you, the customer!!
Contact us today to learn more about your mortgage options!
How the Federal Reserve Affects Mortgage Interest Rates
As a prospective or current homeowner, you may have heard about the Federal Reserve's recent rate increases and wondered how they could affect your mortgage interest rates. In this blog post, we will explore the relationship between the Federal Reserve and mortgage interest rates, and explain what it means for home buyers like you.
Why it Matters
When it comes to buying a home, one of the most important factors to consider is the interest rate on your mortgage. This rate will determine your monthly payment and how much interest you'll pay over the life of the loan. But did you know that the Federal Reserve can play a significant role in determining mortgage rates? Here's how it works:
What is the Federal Reserve
The Federal Reserve, often referred to as the "Fed," is the central bank of the United States. Its primary goal is to promote a stable economy by managing monetary policy. One way it does this is by setting the federal funds rate, which is the interest rate that banks charge each other for overnight loans.
When the Fed raises the federal funds rate, it becomes more expensive for banks to borrow money. As a result, banks are likely to raise the interest rates they charge on loans, including mortgages. This can make it more difficult for potential homebuyers to qualify for a mortgage or afford a home.
Conversely, when the Fed lowers the federal funds rate, banks can borrow money more cheaply. This can lead to lower interest rates on loans, including mortgages. When mortgage rates are lower, it can be easier for potential homebuyers to qualify for a mortgage and afford a home.
How it Impacts Mortgage Rates
It's important to note that the Fed doesn't directly control mortgage rates. Rather, it influences them through its monetary policy decisions. Mortgage rates are also affected by other factors, such as inflation, economic growth, and global events.
If you're in the market for a home, it's important to keep an eye on the Federal Reserve's actions and how they may impact mortgage rates. You may want to consider working with a mortgage broker like us, who can help you navigate the complex world of interest rates and find the best mortgage for your unique situation.
In conclusion, the Federal Reserve has a significant impact on mortgage rates through its monetary policy decisions. As a potential homebuyer, it's important to stay informed about these decisions and work with a trusted professional like us to find the best mortgage for your needs.
Final Note
While there has been much talk about the recent federal interest rate increases, it is crucial to consider the current state of mortgage interest rates in comparison to the past four decades. To illustrate this, the following image displays a historical chart outlining the fluctuations in mortgage interest rates over the last 40 years.
We hope this blog helps you to better understand how the federal reserve rates impact the mortgage interest rates.
Contact us today 407-834-3377
How to File for Homestead Exemption
Are you a homeowner in Florida looking to save on property taxes? Filing for a homestead tax exemption can help you do just that. Here’s what you need to know about the process.
What is Homestead Tax Exemption?
Homestead tax exemption is a legal provision that reduces the taxable value of your property by up to $50,000, making your property taxes lower. To qualify for homestead tax exemption, you must own and occupy your home as your primary residence as of January 1 of the tax year.
How to File for Homestead Tax Exemption in Florida?
To file for homestead tax exemption in Florida, you need to follow these steps:
Step 1: Gather Required Documents
To file for homestead tax exemption, you need to have the following documents:
Step 2: Complete the Application
Once you have the required documents, you need to complete the application for homestead tax exemption. You can get the application from your county property appraiser’s office or download it from their website.
Step 3: Submit the Application
Submit the completed application to your county property appraiser’s office. The deadline to file for homestead tax exemption is March 1st of the tax year.
Step 4: Wait for Approval
The county property appraiser’s office will review your application and supporting documents. If everything is in order, they will approve your application and notify you of your homestead tax exemption status.
Benefits of Homestead Tax Exemption
The benefits of homestead tax exemption are:
Filing for homestead tax exemption in Florida is a simple process that can help you save on property taxes. Make sure you file before the March 1st deadline to take advantage of this valuable tax break.
Feel free to reach out to us for more information: 407-834-3377