Lower debt-to-income ratio fast to qualify for a mortgage

2022-9-9

By Sean Hundtofte

Although credit scores are a widely known measure of financial health, the debt-to-income (DTI) ratio isn't as well known. Debt-to-income ratio is an important measure that financial institutions use to qualify borrowers for loans. This article will teach you how to lower debt-to-income ratio fast.

What does debt-to-income mean?

Debt-to-income ratios compare your core monthly expenses versus how much income you make. It is expressed as a percentage.

How is your debt-to-income ratio used?

Borrowers and particularly mortgage lenders most often use your debt-to-income ratio. Lenders use this ratio to inform them if a borrower can take on any more debt monthly.

How do you calculate debt-to-income ratio?

Step 1: Add up monthly bills, including rent, loan payments, and any other recurring debt Step 2: Take the sum of your fixed monthly debt payments divided by your income.

For an easier method, simply use our free DTI calculator to do all the math for you.

What is a good DTI ratio?

The general rule of thumb for the debt-to-income ratio acceptable by mortgage lenders is 36% or lower. Each individual mortgage lender set their requirements. Some conventional ones will even grant loans to applicants with a DTI ratio of 43% or higher.

Generally among mortgage lenders:

36% or less is viewed as a good DTI ratio 50% or higher DTI ratio will disqualify borrowers from additional loans

Wondering what your debt-to-income ratio is? Try Solve Finance’s free debt-to-income calculator. Enter your income, regular rent, and debt payments, and let us handle the math.

How to lower your debt-to-income ratio fast

Two terms constitute your DTI: debt and income. So, to lower the DTI ratio, you could either reduce your monthly recurring debt, increase your gross monthly income, or do both. However, increasing your income is often a slower process.

Key ways to decrease your debt-to-income fast include:

  1. Refinance debts by optimizing for a lower monthly payment. Shopping on debts can reduce your costs by $1,000 a year, often without creating a more extended loan term period. Individuals can do this with student loans, car loans, personal loans, credit cards, and mortgages.
  2. To the extent you have spare cash, you can pay off any debts, particularly any with high monthly payments but small balances, e.g. debts that might be due to be paid off in the next year or two anyway.
  3. Avoid additional purchases that require financing such as buying a new car or that new TV you’ve been thinking about

Try out Solve Finance's Debt Optimizer. It is easy to see ways of reducing your debt-to-income ratio. It takes about 2 minutes to sign in, and it automatically pulls your DTI ratio and key suggestions on ways to improve. Explore the strategies and watch your DTI decrease monthly. Using the Debt Optimizer gives you peace of mind to know that you are getting the best rate for your debts.

You can also try out the DTI calculator, which helps you calculate by manually entering your income and monthly debts.

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