Full confession…I never knew what a debt-to-income ratio was until recently. Not sure why that is…maybe it is because I have no debt. And, as retired people, our income is on the lower scale of incomes. PLUS, I am not trying to buy any new purchases that are large.
So, when I heard that statement for the first time I had to look it up.
Your debt-to-income ratio is all of your monthly debt payments divided by your gross income.
Simple enough right?
In case you are like me, and need to see it in action…here is an example:
If you are looking to buy a house, many mortgage loan studies have shown that borrowers with a higher debt-to-income ratio are more likely to have trouble making their monthly payments. Lenders prefer to keep your DTI below 40%. That is the highest ratio a borrow can have and qualify for a mortgage.
What is the debt-to-income ratio range? Well, it really depends on who you talk to. Wells Fargo says that the ideal debt-to-income ratio is 28%. And that the high end, including all expenses, is 36% or lower. Wells Fargo has a GREAT Debt-to-Income-Ratio Calculator too.
If your DTI is on the high side…you need to pay off your debt before you can qualify for a mortgage and buy a house. Please take a minute and read ‘Saving To Buy A House‘.
If you are looking to buy a home, DTI is one of the new terms you will hear. Make sure that you understand ALL of the mortgage terms before signing on the dotted line. And, know which questions to ask your lender.
Buying a home is an exciting thing to do. It is also a large expense and commitment. There is nothing worse than not having enough money to pay your bills. Let alone a mortgage that you locked yourself into for 30 years. Make sure that you are not stretching yourself too thin financially.
Maybe pay off some of your debt before you begin…then you have extra cash AND your DTI will be lower.
Just like the tortoise and the hare. Steady plodding wins the race, right?
Question – How do you eat an elephant?‘ Answer – ‘One bite at at time'.'
So start paying off those bills. I know you can do it…and once you do – send me a picture of your first house. I would love to see it.
You may want to read all of the other articles about Budgets and Money too.
And when stress sets in it is sometimes difficult to be happy or joyful. So, don’t let stress have the last word!
Go on and take a look at the ‘Top 5 Stress Reducers’ (Action Plan included). So that you can eliminate what causes you stress and get on the path of living a joyful life.
Joyful Living is ALL about not letting let the circumstances of YOUR life determine who you really are. You learn to choose YOU instead! Not sure how to do that? Let me help!
To begin, go ahead and read: