Debt-to-Income Ratio.

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. 

This is what Debt-to-Income Ratio (DTI) means:

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:

• Your mortgage is $1800. You have a car payment of $250, and a school loan payment of $300. For a total debt of $2350 a month.
• Your gross income (before taxes, insurance and anything else is taken out of your paycheck) is $6000 a month.
• Divide your debts ($2350) by your gross income ($6000) and you have a 39.2% debt-to-income ratio.

Ok – so why should you even care?

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‘.

Buying a home.

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.

Not sure how to even begin paying off your debt? Check out:

• Spending More Than You Earn
• Establishing A Budget
• 40 Ways To Save Money NOW

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. 

Benefits of Budgeting

You may want to read all of the other articles about Budgets and Money too. 

• Benefits of Budgeting
• Budgeting for the Unexpected
• How Big Should My Emergency Fund Be
• What is a Sinking Fund
• How to Stop Overspending
• How to Pay Cash for Everything
• Teaching Money to Kids
• How to Plan for the Unexpected

Sometimes, when your finances are out of control, you are overwhelmed and stress sets in, right?

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.

What is Joyful Living all about?

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:

What is Joyful Living?
5 Simple Steps to Choosing Joy
Finding Joy in All Things
What Does God Say About Joy?
Difference Between Happiness and Joy

PIN FOR LATER: Debt to Income Ratio