If you find your Debt-to-Income (DTI) Ratio is problematic, what can you do?
Don't go into a mortgage application ignorant of your DTI and its effects. If it is not where you need it to be, with some planning and time, you can put your DTI value in the range to get the house of your dreams – or you may have to adjust your dreams. Don't forget, if you cannot afford it but buy it anyway, your dream house can quickly become a nightmare.
- Cut Spending – Obvious, but worth emphasizing. If you have not done so already, organize your expenses into daily needs, essential bills, and wants. How many wants are you willing to give up or delay in order to buy a home?
- Control your Credit – Keeping your credit card balance low is a positive – 10% or below of your credit limit is best; 35% or above is a red flag for most lenders.
It is very important not to open any new credit accounts during this time. Not only is that greater temptation to spend, it will affect your credit score whether you use the account or not. Lenders see asking for more credit as a dangerous risk sign. The free Debt Optimizer by MoneyTips can help you consolidate your debt and reduce your interest payments.
- Scale Back Housing Goals – Perhaps you are just trying to buy too much home for the income, savings, and debt that you have. You can either consider buying a less expensive home that fits your current income, or alter your spending and saving habits with the goal of qualifying for your preferred home in the future.
- Second Job – You can raise your income level, but you have to balance the potentially brutal lifestyle against your housing goals. Is buying a larger house that important to you?
This article was provided by our partners at moneytips.com.
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