I just met with a lovely couple who were doing very well in their jobs, making good money and were ready to make the big leap to homeownership! Sound familiar?
I then had them meet with my lender who quickly got them pre-approved…BUT!
The big but in this case was they both had great credit…BUT…carried a ton of Debt. You know the story, student loans, impulse purchases on big ticket items and the whole “Keeping up with the Jones” mindset that left them with a lot of nice stuff…and a mountain of bills, too!
Debt can be a real killer when it comes to getting a good interest rate…or an interest rate at all! Sadly, some folks have such a high debt to income ratio they are left with very little at the end of the month. Case in point being these nice kids making such good money, with virtually all of it going to pay off old bills and their current lifestyle.
Your debt to income, or DTI, is one of 3 factors lenders use when you apply for a home loan.
Along with your credit score and the loan-to-value ratio, your debt to income is likely the biggest influencer (I know that’s not a real word) in all this! Realizing a lot of debt may be a portent for a lender in your ability to repay your home loan, most buyers who finance their home purchase are faced with a number of issues.
Issue number 1 is getting your debt down and Issue number 2 is…HOW?
Dealing with your Monthly debt payments such as credit cards, alimony & child support, car payments, rent, student loans debt and any personal debt can seem monumental…BUT, it’s not impossible!
There are really only a couple of ways to get your debt to income in check.
- Make more money
- Get rid of your debt
Which sounds easier? My guess would be number 2…let’s see how.
No Brainer #1 – Get Hyper-focused on your Bills.
If you’re like some folks I know, you have unopened bills laying all over your desk. When they come in…pay them. Not only will you have that off your plate, you may likely see a jump in your overall credit score and show your lender you are responsible and eager to pay down your debt…ON TIME!
No Brainer #2 – If you only owe a few hundred dollars…just pay it off!
Too often, we just make the minimum payment on stuff…STOP THAT! Pay off those small loans and make larger payments to pay down those bigger debts. If you have less money at the end of the month but less debt to show for it…it’s a very good thing!
No Brainer #3 – Talk to your creditors about lowering your interest rate.
No one likes to deal with these people but you might just find they are more receptive than you think. My lender has some great options for getting these folks to help you lower your rate and I’d love to share those with you…just give me a call.
No Brainer #4 – Pay Cash whenever possible.
I have a friend who was a prime example of living on plastic. Several years ago he decided to just cut those bad boys up and quit cold turkey. Today, he pays cash for everything and never has a card (other than his debit card) in his wallet. Tells me it’s a great deterrent with those impulse purchases and keeps him in balance with his spending.
No Brainer #5 – Stop Buying Stuff!
This one may come as the hardest thing to do and yet the easiest thing to do to get back on track.
I am passionate about Real Estate and eager to answer all of your real estate questions! Text or Call me at 360-880-2356 or email me directly to ask about Buying, Selling or Investing in today's Real Estate Market - serving Lewis County & Thurston County, WA.
Certified Residential Specialist | Real
Mountain Valley Real Estate