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Your DTI is used by mortgage lenders to determine whether you qualify for a loan, and if so, for how much. Improve your DTI with these 16 tips.
If you've come across this article you already know that your debt-to-income (DTI) ratio is an important metric lenders use to determine whether you qualify for a mortgage. In this article we'll show you how to improve your DTI in order to increase your chances of getting a mortgage, or simply to get better mortgage terms.
DTI is your monthly debt payments divided by your monthly gross income:
|Your total monthly debt payments:||$1,250|
|Your total monthly gross income:||$6,000|
|Divide debt payments by gross income:||
$1,250 ÷ $6,000 =
What you're left with is a ratio that tells a lender how much of your income is used to pay debts, thereby telling the lender how much more debt they're willing to lend to you. In this case, lower is better.
There are some basic rules of DTI, such as what is the maximum ratio is or what to include in you debt payments, but we won't cover that in this article. If you're interested you can learn more here.
Lowering your DTI is mathematically quite simple, but it does take commitment and a plan to get there. The basic way of lowering your DTI is to either:
Just because you make extra income every once in a while don't expect lenders to count that income. You need to show lenders that your income is consistent and reliable if you want that income to count towards your DTI calculation.
Alternatively, if the extra income you make cannot be used in your DTI calculation, you can use that extra income to pay down your debts!
1. Increase Your Job Salary
Easier said than done, but have you asked your boss how? Perhaps there are new positions, new skills you can learn, additional hours you can work, or is it time for a new job at a new company?
2. Offer Your Services Independently
Selling your expertise as an independent consultant is a major shift in today's global economy. Don't quit your day job though, and make sure your side consulting gig doesn't interfere with your stable employment income.
3. Rent Your Parking Spot
If you live near popular attractions such as the beach, airports or urban downtowns and have an empty parking space then you can rent it out and make money. Check out JustPark and ParkWhiz to see if this is something you can do.
4. Do Market Research
If you like to perform research then why not get paid for it! Some people claim to make $100 to $150 a day. You can find a list of research companies at GreenBook.
5. Become a Freelancer Writer
If writing is a passion of yours and you're an expert on a topic why not write and get paid. Writing is constantly in demand and can be a consistent source of income. Check out blogging jobs at Problogger to start.
6. Become a Tutor
7. House Sit
Some people who travel for their job or for pleasure often need a house sitter. The pay varies depending on the duties that you need to perform while they're gone but a typical range is from $25 to $50 a day.
8. Become a Driver
Companies like Lyft and Uber are turning people into drivers. Drive when you want and earn when you want. Some drivers from Lyft and Uber claim to make up to $70k a year in San Francisco and up to $90k in New York.
9. Become a Virtual Assistant
As a virtual assistant you can work from home or just about anywhere as long as you get the job done. Some virtual assistant make anywhere from $10 to $30 per hour. You may want to consider becoming certified to get more assignments at an organization such as assistu.
10. Become a Translator
If you know a second language and are detail oriented, then translating may be an excellent opportunity to make more money. Take advantage of your language skills and get paid. As a translator you can work at your own pace. translatorsbase is a great example of a site where you can find translation jobs with some projects paying more than $500.00!
11. Social Media Expert
If you love to be on social media and have lots of followers you can make money by promoting other people products. According to Business 2 Community you can make $750 for 3 hours a week plus meetings.
In addition to making more income you can reduce your total debt payments.
Only debt commitments such as your credit card bill or student loan payment is counted in your DTI calculation. Regular living expenses such as groceries and cell phone bill do not count. What you'll want to do is to reduce your debt commitments, and/or reduce your expenses so you can use the extra savings to pay down your debts.
12. Pay More Towards Your Debts
Pay more than your minimum to pay off the principal balance quicker. For example, if you owe $1,000 on your credit card at 20% annually and make a minimum payment of $20 it'll take more than 8 years to pay off your debt!
13. Become a Chef
Eat at home. If you eat out for breakfast, lunch and dinner, you'll spend more than $9,000 annually! If you only ate out for lunch you'll still spend more than $2,400. Eat before leaving the house, pack a lunch and cook a meal for dinner.
14. Shop Necessary Bills
You may not have an option to shop necessary bills like water and electricity, but you can shop other bills such as car insurance and cell phone service. By doing so you can save over $1,500 per year! It all adds up.
15. Eliminate Unnecessary Expenses
Do you really need cable television? Why not eliminate it and save $600 per year? If you need your television fix, try services such as Netflix. At $8 per month you'll still get to view shows and movies and save hundreds per year.
16. Explore Your Community
The best things in life are free, or pretty darn cheap! Going to the park, hiking or just taking an evening stroll is not only healthy, it's free. Checkout Meetup for local events. Explore new interests and meet people to do it with.
Improving your DTI doesn't come over night, but it can be done with commitment and the right decisions. So start now and improve your DTI. Your bank account will thank you for it, and you'll be rewarded by your lender with a better mortgage.
If you have additional tips, please share it in the comments so others can benefit as well.
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