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2.2. Lower your Debt To Income – with Budget sheet

By now, you have most likely identified your debt-to-income (DTI) ratio and have an understanding how your DTI ratio dictates the lenders decision whether to lend or not.  In this section, we hope to be able to provide some clear clarification as to how you can lower your DTI ratio to a standard that will get you approved for loan of your choice!

Budget

If you don’t have a budgeting system or software that you use daily, it is suggested you find one to assist you in keeping track of your daily spending habits.  You can use fancy software, note pads, checkbook ledgers, free websites like mint.com or you can even use the free excel sheet attached to this outline. Regardless of the means you choose, establishing a budget will get you closer to the required DTI ratio that lenders require.

Generally, you want your DTI ratio below 43%, which means your total monthly expenses shouldn’t exceed 43% of your gross monthly income.  If your DTI exceeds the 43%, that is an indicator that your expenses may be too high which could make covering the daily expected and unexpected living expenses difficult to pay.  This could make a new or higher mortgage payment more difficult to make.

Once you have identified your monthly expenses, the goal is to be creative and find ways to lower your required monthly expenses. By doing so, you will have more discretionary income at your disposal.  

Lower Your Monthly Fixed payments on Credit Cards, Car’s etc.

You can lower your monthly fixed expenses by leveraging an asset such as equity in a home or available credit in which you can consolidate or refinance to a longer term with a lower interest rate.  The key is to find a cheaper alternative and then use the money saved to pay down the balance of the debt which over time will lower your DTI.

Spend Wisely

This is easy, don’t splurge on items that are overpriced or not needed.  Make sure to determine the difference between needing something and wanting something. You can still have fun and enjoy life but be selective how you spend money.  If you can save money on living costs, you can use those additional savings to pay down fixed expenses which will help lower your DTI.

The opportunities are endless to save money and lower your DTI.  Be creative, and stay focused in your pursuit and keep working at it. Consistency is the key to success!      

Personal Budget Sheet