Your debt to income ratio plays an integral role in your ability to secure a mortgage. A high ratio can mean no mortgage approval. If you are approved, it may mean a higher interest rate to make up for the higher risk you pose.
Luckily, there are ways you can lower the ratio fast to help you get the mortgage approval you need.
Pay With Cash
Using your credit cards might seem simple or it may keep you more organized, but it hurts your DTI. If you don’t pay the bill off in full each month, the lender must include the minimum payment in your debts. Depending on the amount, it could cause your DTI to be unnecessarily high. If you are trying to apply for a mortgage, skip the credit cards for a while and pay cash for your normal expenses. While you won’t rack up credit card rewards when you don’t use your card, you’ll put yourself in a better position to secure a mortgage approval.
This may be easier said than done, but you need to find areas to stop spending. Take a close look at your last few months’ of spending. Where do you spend the most? Do you make coffee stop shops, go on spending sprees, and get your nails done weekly? Look at habits that you can cut down or stop altogether. You can then use that cash to help you pay down your debts. This doesn’t have to be forever, but sacrificing some things now can help you get the mortgage approval you desire.
Ask for a Raise
When was the last time you received a raise from your employer? If your company doesn’t conduct regular reviews, it may be time to ask for one. Take the time to prepare yourself – think of the things you do well and the ways you have helped the company. During your meeting bring up these points as you ask for a raise to help you lower your debt to income ratio.
If your company offers the option to work overtime, take it. Use the extra money you make to pay your debts down directly. Talk to your company about ways you can make a little extra cash. For example, if you are a teacher, consider coaching or heading up after school activities. The bonuses you receive for these tasks can help you pay your debts. You never know what opportunities your employer has for extra income until you ask.
Start a Side Hustle
Do you have a special skill that you can use to help others? People pay for all different types of services. Whether it’s something you do physically, such as mow lawns or paint homes or you can do something from home such as data entry or be a virtual assistant, there are thousands of ways to make money on the side. You don’t have to work your side gig full time; you set the hours. You can then use the money to pay down your debts and decrease your debt to income ratio.
Take a Second Job
If you don’t have the initiative to start a side hustle, consider taking on a second job. Take a part-time job doing something you enjoy. You can then use those funds to pay down your debts. Remember that every little bit counts, so even if you only work an extra 10 hours a week, you can use that money to lower your DTI.
Consolidate Your Debt
Do you have a lot of revolving debt? Consider consolidating it into one credit card or loan. This way rather than several minimum payments you only have one payment. If you are lucky enough to lower the interest rate on the debt as well, you’ll pay more towards principal than interest. This could be a win-win for you as you’ll have a lower DTI with the lower payment and you’ll pay your balance down faster.
Use the Snowball Method
It can be tempting to make just the minimum payments on your debts each month, but this gets you nowhere. It will take you many years to pay off each debt, leaving your DTI high for many years. Instead, use the snowball method. Start by figuring out how much extra you can pay each month. Next, choose a debt to put that extra money towards. Make sure you choose only one debt. Regularly pay that debt down until it is paid off in full. Once it’s paid off, take the amount you are used to paying (the extra plus the minimum payment of the next card) and start paying your next debt. Keep doing this until you are out of debt completely.
These tricks will help you decrease your debt to income ratio quickly. The speed at which it happens depends on you. How quickly do you want to get out of debt? You can redo your budget and quit your spending in certain areas starting immediately. You can also talk to your employer about opportunities to make more money rather quickly. The more focused you are on the task, the quicker you can get the process done.